a

GAO

United States General Accounting Office

Report to Congressional Committees

January 2004 INTERNATIONAL 

TRADE

U.S. Customs and 

Border Protection 

Faces Challenges in 

Addressing Illegal 

Textile Transshipment

GAO-04-345
www.gao.gov/cgi-bin/getrpt?GAO-04-345.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4347 or YagerL@gao.gov. 

Highlights of GAO-04-345, a report to the 

Chairmen and Ranking Minority Members, 

Committee on Finance, U.S. Senate, and 

Committee on Ways and Means, House of 

Representatives 

January 2004

INTERNATIONAL TRADE 

U.S. Customs and Border Protection 

Faces Challenges in Addressing Illegal 

Textile Transshipment 

To identify potential illegal textile transshipments, CBP uses a targeting 

process that relies on analyzing available trade data to focus limited 

inspection and enforcement resources on the most high-risk activity. In 2002, 

CBP targeted about 2,500 textile shipments out of more than 3 million 

processed, or less than 0.01 percent. 

Given resource constraints at CBP ports, CBP’s textile review process for 

preventing illegal textile transshipment increasingly depends on information 

from foreign factory visits that CBP conducts, based on the targeting results. 

However, CBP’s foreign factory visit reports are not always finalized and 

provided to ports, other agencies, or the foreign governments for timely 

follow-up. Further, after the global textile quotas end in 2005, CBP will lose 

its authority to conduct foreign factory visits in former quota countries. U.S. 

overseas Attaché offices and cooperative efforts by foreign governments can 

supplement information provided to the ports. 

Under CBP’s in-bond system, foreign textiles and apparel can travel through 

the United States before formally entering U.S. commerce or being exported 

to a foreign country. However, weak internal controls in this system enable 

cargo to be illegally diverted from its supposed destination, thus 

circumventing quota restrictions and payment of duties. Moreover, CBP’s 

penalties do not deter in-bond diversion. Bond amounts can be set 

considerably lower than the value of the cargo, and violators may not view 

the low payments as a deterrent against diverting their cargo. 

CBP’s Process for Processing and Inspecting Goods 

Textiles 

produced 

abroad;

 shipped to 

United 

States

Sources: GAO, Nova Development, and Corbis.

Entry Targeting Review Final actions

Shipments 

presented for entry 

into U.S. commerce

Release into 

U.S. 

commerce

Excluded or 

seized

Penalties and 

prosecution

Export

In-bond

Shipments enter 

U.S. border to be 

transported inland for 

entry or export

U.S. policymakers and industry 

groups are concerned that some 

foreign textile and apparel imports 

are entering the United States 

fraudulently and displacing U.S. 

textile and apparel industry 

workers. Congress mandated GAO 

to assess U.S. Customs and Border 

Protection’s (CBP) system for 

monitoring and enforcing textile 

transshipment and make 

recommendations for 

improvements, as needed. 

Therefore, GAO reviewed (1) how 

CBP identifies potential illegal 

textile transshipment, (2) how well 

CBP’s textile review process works 

to prevent illegal textile transshipment, and (3) how effectively CBP 

uses its in-bond system to monitor 

foreign textiles transiting the 

United States. 

GAO is making several 

recommendations to the 

Commissioner of CBP to improve 

the information available for textile 

transshipment reviews, to 

encourage continued cooperation 

by foreign governments, to improve 

CBP’s monitoring of in-bond cargo, 

and to strengthen the deterrence 

value of in-bond enforcement 

provisions. 

The Department of Homeland 

Security agreed with GAO’s 

findings and recommendations. 
Page i GAO-04-345 Textile Transshipment

Contents

Letter 1

Results in Brief 3

Background 5

CBP Uses a Targeting Process to Identify Potential Textile 

Transshipment 8

CBP Has Adapted Textile Review Activities to Changing 

Environment but Faces Further Challenges 18

Weak Internal Controls Hinder Effectiveness of CBP’s In-bond 

System 32

CBP Has Experienced Serious Challenges in Enforcing Textile 

Transshipment 45

Conclusions 53

Recommendations for Executive Action 55

Agency Comments 56

Appendixes

Appendix I: Objectives, Scope, and Methodology 57

Appendix II: U.S. Textile and Apparel Trade, Production, and 

Employment 61

Imports of Textile and Apparel 61

Top U.S. Ports 65

Textile and Apparel Products Affected by Quotas 67

Future Barriers to Trade in Textile and Apparel 67

Appendix III: Comments from the Department of Homeland Security 72

Appendix IV: GAO Contacts and Staff Acknowledgments 76

GAO Contacts 76

Staff Acknowledgments 76

Tables Table 1: U.S. Trade Partners Visited by Textile Production 

Verification Teams, 2000-2003 12

Table 2: Total number of In-bond Cases and Assessed Amount for 

Liquidated Damages, 2001-2003 37

Table 3: CBP Port-Level Exclusions, Penalties, and Seizures of 

Textiles, 2000-2002 (Dollars in millions) 48

Figures Figure 1: U.S. Textile and Apparel Domestic Production, 

Employment, Imports, and Exports, 1993-2002 7

Figure 2: CBP’s Process for Targeting Textile Transshipment 10
Contents

Page ii GAO-04-345 Textile Transshipment

Figure 3: CBP’s Monitoring of U.S.-Vietnam Trade Indicates Role 

and Limitations of Targeting 14

Figure 4: An Overview of CBP’s Textile Monitoring and 

Enforcement Process, with Results for 2002 21

Figure 5: TPVT Officials Verifying Production in El Salvador Textile 

Factories, in July 2003 25

Figure 6: Main Hong Kong-China Commercial Control Point at Lok 

Ma Chau, August 2003 31

Figure 7: Total In-bond Entries for 11 Major U.S. Ports, January 

2002-May 2003 34

Figure 8: Example of In-bond Diversion of Goods Supposedly 

Going to Mexico 36

Figure 9: Weaknesses in the In-bond Process 42

Figure 10: Major Components of Textile and Apparel Imports, 

1993-2002 62

Figure 11: Share of U.S. Textile and Apparel Imports by Trade 

Partner, 2002 64

Figure 12: Share of U.S. Textile and Apparel Imports by Service Port, 

2002 66

Figure 13: Employment in Major Sectors of the Textile and Apparel 

Industry, 1993-2002 70

Figure 14: U.S. Production (Shipments) in Textile and Apparel 

Sectors, 1997-2001 71
Contents

Page iii GAO-04-345 Textile Transshipment

Abbreviations

ACE Automated Commercial Environment

ACS Automated Commercial System

AGOA African Growth and Opportunity Act

ATC Agreement on Textiles and Clothing

ATPDEA Andean Trade Promotion and Drug Eradication Act

BICE Bureau of Immigration and Customs Enforcement, Department 

of Homeland Security

CAFÉ’S Customs Automated Form Entry System

CBP U.S. Customs and Border Protection

CBTPA Caribbean Basin Trade Partnership Act

CITA Committee for the Implementation of Textile Agreements

FTA Free Trade Agreements

FTAA Free Trade Area of the Americas

I.E. Immediate Exportation

I.T. Immediate Transportation

NAFTA North American Free Trade Agreement

STC Strategic Trade Center

T&E Transportation and Exportation

TPVT Textile Production Verification Team

USTR Office of the U.S. Trade Representative

WTO World Trade Organization

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Page 1 GAO-04-345 Textile Transshipment

United States General Accounting Office

Washington, D.C. 20548

A

January 23, 2004 Letr

The Honorable Charles E. Grassley

Chairman

The Honorable Max S. Baucus

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable William M. Thomas

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

Committee on Ways and Means

House of Representatives

With overall U.S. imports of textile and apparel products running about $81 

billion in 2002, or about 7 percent of all U.S. imports, U.S. policymakers and 

industry groups have been concerned that some foreign textile and apparel 

imports are entering the United States fraudulently and displacing U.S. 

textile and apparel industry workers. Illegal textile transshipment is one 

form of such illegal import activity and occurs when false country-of-origin 

information is provided for imported goods in order to evade U.S. textile 

quotas and customs duties.1

 U.S. Customs and Border Protection (CBP)2

does not have a reliable estimate of the overall amount of illegal textile 

1

As defined in the Trade Act of 2002, illegal textile transshipment occurs when preferential 

treatment under any provision of law has been claimed for a textile or apparel article on the 

basis of material false information concerning the country of origin, manufacture, 

processing, or assembly of the article or any of its components. False information is 

material if disclosure of the true information would mean or would have meant that the 

article is or was ineligible for preferential treatment under the provision of law in question. 

“Country of origin” for customs purposes generally refers to the country, territory, or insular 

possession where a textile or apparel product is grown, produced, or manufactured. 

Exceptions to this general principle exist and are briefly discussed in later sections of this 

report. Quotas are quantitative restrictions on the amount of a good that can be entered into 

commerce. A tariff is a duty or tax levied at the border on goods going from one country to 

another. 

2

On March 1, 2003, the U.S. Customs Service was transferred to the new Department of 

Homeland Security. The border inspection functions of the Customs Service, along with 

other U.S. government agencies having border protection responsibilities, were reorganized 

into the U.S. Customs and Border Protection (CBP). The U.S. Customs Service’s Office of 

Investigations was transferred into the Department’s new Bureau of Immigration and 

Customs Enforcement (BICE).
Page 2 GAO-04-345 Textile Transshipment

transshipment that occurs annually, but restrictive U.S. quotas and 

relatively high tariffs on certain textile and apparel products create 

incentives to foreign suppliers and importers to avoid these trade 

restrictions.3

 

Congress included a mandate in the Trade Act of 2002 (P.L. 107-210, Aug. 6, 

2002) directing that we assess CBP’s system for monitoring and enforcing 

textile transshipment4

 and make recommendations for improvements, as 

needed. As discussed with representatives of the Senate Committee on 

Finance and the House Committee on Ways and Means, we have focused 

on answering the following questions: 

• How does CBP identify potential textile transshipment?

• How well does CBP’s textile review process work to prevent illegal 

textile transshipment?

• How effectively does CBP monitor foreign textiles transiting the United 

States in its in-bond system before entering U.S. commerce or being 

exported? and

• What challenges, if any, has CBP experienced in using penalties and 

other means to deter illegal textile transshipment? 

To answer these questions, we conducted fieldwork at seven ports of entry 

(New York/Newark, New York; Los Angeles/Long Beach, California; 

Laredo, Texas; Columbus and Cleveland, Ohio; and Seattle and Blaine, 

Washington) to review how CBP reviews textile shipments at the major 

land, sea, and inland ports. Together, these ports represent CBP service 

ports that processed 55 percent of textiles and apparel imported into the 

United States in 2002. We also reviewed CBP’s data analysis at its Strategic 

Trade Center in New York, observed a Textile Production Verification Team 

conduct foreign factory visits in El Salvador, and discussed CBP’s efforts to 

coordinate textile enforcement activities with the customs authorities in El 

Salvador, Hong Kong, Macau, Mexico, and Canada. We conducted a survey 

3

Textile transshipment is difficult to detect, and CBP has not attempted to systematically 

determine the size of illegal transshipment occurring. 

4

For purposes of this report, the term “transshipment” refers to illegal textile and apparel 

transshipment; and “textiles” refers to textiles and apparel, unless otherwise specified.
Page 3 GAO-04-345 Textile Transshipment

of 29 CBP ports, including the 11 largest ports that process textiles and 

apparel imports. (See app. I for details about our scope and methodology.) 

Results in Brief To identify potential illegal textile transshipments to the United States, CBP 

targets countries, manufacturers, shipments, and importers that it 

determines to be at a higher risk for textile transshipment. CBP uses a 

targeting process that relies heavily on analyzing available trade data and 

other information to focus limited review and enforcement resources on 

the most suspect activity. First, CBP identifies the countries in which trade 

flows and other information indicate a large potential for transshipment. 

Second, CBP focuses on selected manufacturers in those high-risk 

countries for overseas factory visits, known as Textile Production 

Verification Teams. The teams attempt to verify that factories are able to 

produce the shipments they have claimed or to discover evidence of 

transshipment, such as counterfeit documents. If evidence of 

transshipment is found, CBP uses this information to target shipments to 

the United States for review and potential exclusions, seizures, or 

penalties. In 2002, CBP targeted and selected for review about 2,500 textile 

and apparel shipments out of more than 3 million such shipments it 

processed that year. CBP also targets importers based on high-risk activity, 

and conducts internal control audits that include verifying whether the 

importers have controls against transshipment. However, resource 

constraints limit the number of foreign factories and shipments that CBP 

can target and review annually to a small share of textile and apparel trade. 

CBP’s textile review process for preventing illegal textile transshipment 

has adapted to the changing security environment, but CBP faces 

challenges in its monitoring and enforcement activities. The textile review 

process includes analysis of entry documents, inspection of shipments, and 

verification of foreign production. CBP ports increasingly depend on 

information received from targeting the most high-risk shipments, the 

results of CBP’s Textile Production Verification Team foreign factory visits, 

and other intelligence to do so, given the decreasing level of resources 

available at the ports for illegal textile transshipment enforcement. 

However, CBP’s Textile Production Verification Team reports are not 

always finalized and provided to CBP ports, other agencies, or the foreign 

governments for follow-up in a timely manner. With the expiration of the 

World Trade Organization’s textile quota regime in 2005, CBP will lose its 

authority to conduct foreign factory visits in former quota countries. 

Additionally, supplementing the enforcement information provided to the 

ports will be important because textile transshipment will remain a 
Page 4 GAO-04-345 Textile Transshipment

concern due to tariff differentials resulting from free trade agreements and 

trade preference programs. Information from overseas Customs Attaché 

offices, now used on a limited basis, and cooperative efforts by foreign 

governments can provide important information for port inspections. 

CBP has not effectively monitored movements of textiles in its in-bond 

system, due to weak internal controls that enable cargo to be illegally 

diverted from the supposed destination. The in-bond system allows cargo, 

including foreign textiles, to be transported from the original U.S. port of 

arrival (such as Los Angeles) to another U.S. port (such as Cleveland) for 

formal entry into U.S. commerce or for export to a foreign country. The 

effect of illegal diversion is that quota restrictions have been circumvented 

and payment of duties avoided. For example, a 2003 CBP investigation of 

in-bond diversion of foreign textiles found that the U.S. importer was filing 

false CBP documents reflecting export into Mexico when, in fact, the 

textile shipments were turned around before reaching the border and 

diverted into the U.S. market. Internal control weaknesses include

• lack of an automated system to track in-bond shipments, 

• inconsistencies across ports in targeting and inspecting in-bond 

shipments, 

• in-bond regulations that allow importers to change in-bond shipments’ 

final destinations without notifying CBP and allow extensive time 

intervals for in-bond shipments to reach their final destination, and

• inadequate verification that in-bond shipments destined for Mexico are 

actually exported.

Although we reported on the in-bond system in 1994 and 1997 and made 

recommendations to CBP, not all have been implemented. Since we began 

our recent review, CBP has implemented some new measures and has 

made some improvements to the in-bond system. However, internal 

control problems remain.

CBP has experienced serious challenges in deterring illegal textile 

transshipment due to a lengthy and complex investigative process and 

competing priorities. CBP has extensive authority to enforce textile 

transshipment violations—from seizing the textiles, to penalizing or 

prosecuting the violator, to totally excluding the textiles from entering U.S. 

commerce. However, CBP relies on exclusions because, among other 
Page 5 GAO-04-345 Textile Transshipment

reasons, they require less evidence than seizures and eliminate the need to 

penalize or prosecute the violator. Furthermore, enforcing violations under 

the in-bond system presents challenges due to CBP’s weak internal controls 

and mitigation guidelines that can allow reduction of liquidated damages to 

a fraction of the total amount. CBP also employs other means to deter 

illegal transshipment by informing the U.S. importer community of 

violations. Additionally, CBP and the interagency Committee for the 

Implementation of Textile Agreements5 maintain various lists of foreign 

violators, in part to help deter transshipment by the importer community. 

CBP also regularly meets with the textile trade community to keep it 

informed of the latest enforcement information. 

In this report, we are making recommendations to improve information 

available for textile reviews at the ports, to encourage continued 

cooperation by foreign governments, and to strengthen CBP’s monitoring 

of in-bond goods.

We received written comments on a draft of our report from the 

Department of Homeland Security, which agreed with our 

recommendations. (See app. III.) 

Background The United States, like the European Union and Canada, maintains annual 

quotas on textile and apparel imports from various supplier countries. 

When a country’s quota fills up on a certain category of merchandise, that 

country’s exporters may try to find ways to transship its merchandise 

through another country whose quota is not yet filled or that does not have 

a quota. Transshipment may also occur because obtaining quota can be 

very expensive and the exporters want to avoid this expense. The actual 

illegal act of transshipment takes place when false information is provided 

regarding the country-of-origin to make it appear that the merchandise was 

made in the transited country. The effects of the illegal act of 

transshipment are felt in both the transited country (potentially displacing 

its manufactured exports) and the United States, increasing competition 

for the U.S. textile and apparel industry.

5

The Committee for the Implementation of Textile Agreements is an interagency group 

composed of members from the Office of the U.S. Trade Representative and the 

departments of Commerce, Labor, State, and the Treasury. 
Page 6 GAO-04-345 Textile Transshipment

These U.S. quotas, embodied in approximately 45 bilateral textile 

agreements, are scheduled for elimination on January 1, 2005, in 

accordance with the 1995 World Trade Organization (WTO) Agreement on 

Textiles and Clothing. However, U.S. quotas will remain for approximately 

five countries that are not members of the WTO and for specific product 

categories when trade complaint actions, resulting in reinstated quotas, are 

approved. Incentives to engage in transshipment will also continue due to 

the differing tariff levels resulting from the various bilateral or multilateral 

free trade agreements and preference programs that the United States has 

signed with some countries.6

 U.S. tariffs on certain types of sensitive 

textile and apparel products range up to 33 percent,7 but such tariffs can 

fall to zero for imports from trade agreement countries. As with quotas, 

manufacturers from countries facing higher U.S. tariffs may find ways to 

transship their merchandise to countries benefiting from lower or no U.S. 

tariffs, illegally indicate the merchandise’s country-of-origin, and enter the 

merchandise into the U.S. market.

Imports Nearly Double over 

Past Decade, While 

Production and 

Employment Decline

Over the past decade, U.S. imports of textile and apparel products have 

grown significantly, while domestic production and employment have 

declined. For example, textile and apparel imports in 2002 were about $81 

billion, nearly double their value in 1993.8 The largest suppliers to the U.S. 

market in 2002 were China (15 percent), Mexico (12 percent), and Central 

America and the Caribbean (as a group, 12 percent). See appendix II for 

6

The United States has negotiated free trade agreements or enacted trade preference 

programs with numerous countries or regions. The Trade and Development Act of 2000 

includes the African Growth and Opportunity Act (AGOA) and the Caribbean Basin Trade 

Partnership Act (CBTPA) and gives nations of both regions quota-free and duty-free access 

to the U.S. market for products meeting rules of origin requirements. In addition, the Trade 

Act of 2002 provides for expanded access to U.S. markets from AGOA countries and also 

provides duty-free and quota-free treatment for merchandise from Colombia, Peru, Ecuador, 

and Bolivia. In addition, the United States, Mexico, and Canada participate in the North 

American Free Trade Agreement (NAFTA), and in 2003 the United States entered into free 

trade agreements with Chile and Singapore. The rule-of-origin provisions differ in these 

various trade agreements.

7

This compares to an overall average U.S. tariff rate of less than 5 percent.

8

Textile and apparel imports, as we define them in this report, include all textile and apparel 

products, whether or not quotas or other restrictions cover them. See appendix II for more 

information on textile and apparel trade and appendix I for more information on our 

methodology.
Page 7 GAO-04-345 Textile Transshipment

more information on textile and apparel trade, production, and 

employment.

While imports have grown over the decade, domestic production and 

employment have declined. Figure 1 shows U.S. domestic production, 

imports, exports, and employment in the U.S. textile and apparel sector. 

From 1993 through 2001 (latest year available), textile and apparel 

production (as measured by shipments to the U.S. market or for export) 

declined by 11 percent, and employment fell by 38 percent. However, the 

United States still maintains significant production (over $130 billion) and 

employment (about 850,000 jobs) in the textile and apparel sector. 

Figure 1: U.S. Textile and Apparel Domestic Production, Employment, Imports, and Exports, 1993-2002

Note: Data on production (shipments) was not available for 2002. Production, import and export 

values are in current dollars, not adjusted for inflation. Producer price changes in the domestic textile 

products and apparel sector were low over this period.
Page 8 GAO-04-345 Textile Transshipment

U.S. Government Roles in 

Monitoring Textile 

Transshipment

CBP has responsibility for ensuring that all goods entering the United 

States do so legally. It is responsible for enforcing quotas and tariff 

preferences under trade agreements, laws, and the directives of the 

interagency Committee for the Implementation of Textile Agreements 

(CITA) involving the import of textiles and wearing apparel. CBP has 

established a Textile Working Group under its high-level Trade Strategy 

Board that prepares an annual strategy for textiles and apparel. This 

annual strategy establishes national priorities and an action plan to carry 

out its goals. Within the framework of this overall strategy, CBP 

administers quotas for textiles, processes textile and apparel imports at 

U.S. ports, conducts Textile Production Verification Team (TPVT) visits to 

foreign countries, provides technical input for trade agreement 

negotiations, and monitors existing trade agreements. In addition to staff 

at CBP’s headquarters, officials at 20 Field Operations Offices9

 and more 

than 300 CBP ports of entry oversee the entry of all goods entering the 

United States. CBP has a specific unit, the Strategic Trade Center (STC) in 

New York City, assigned to analyze textile trade data and other information 

sources for the targeting process. 

In addition to CBP, the departments of Commerce, Justice, State, and 

Treasury, and the Office of the U.S. Trade Representative (USTR) also play 

a role in transshipment issues. Further, as an interagency committee, CITA 

determines when market-disrupting factors exist, supervises the 

implementation of textile trade agreements, coordinates U.S. 

administration efforts to combat illegal textile and apparel transshipment, 

and administers the phase-out of textile and apparel quotas on WTO 

countries required under the 1995 Agreement on Textiles and Clothing.

CBP Uses a Targeting 

Process to Identify 

Potential Textile 

Transshipment

CBP’s process for identifying potential illegal textile transshipments 

depends on targeting suspicious activity by analyzing available data and 

intelligence. Due to increased trade volumes and shifted priorities, CBP 

seeks to focus its limited enforcement resources on the most suspect 

activity. CBP targets countries, manufacturers, shipments, and importers 

that it determines to be at a higher risk for textile transshipment. First, 

CBP identifies the countries in which trade flows and other information 

indicate a high potential for transshipment. CBP then targets selected 

9

Field Operations Offices provide centralized management oversight and technical 

assistance for port operations within their regions.
Page 9 GAO-04-345 Textile Transshipment

manufacturers in those high-risk countries for overseas factory visits. 

Information from the factory visits is then used to target shipments to the 

United States for review and potential exclusions or penalties. Finally, CBP 

also targets importers based on high-risk activity and conducts internal 

control audits that include verifying that controls against transshipment 

exist. However, CBP selects only a small share of foreign factories and 

shipments for review due to limited resources.

Targeting Is Essential, Due 

to High Trade Volumes and 

Shifting Priorities for 

Resources

In response to a rapidly growing volume of trade at the border and limited 

resources for enforcement, CBP relies on a targeting process to identify 

shipments that have a high risk of being transshipped. According to CBP 

officials, trade growth and expanding law enforcement efforts have nearly 

overwhelmed its staff and resources. In addition, CBP’s modernization of 

its processes and technology, as called for in the Customs Modernization 

and Informed Compliance Act of 1993, recognizes that the nearly 25 million 

entries (shipments) CBP processes annually cannot all be inspected.10 

Furthermore, since the terrorist attacks of September 11, 2001, CBP has 

shifted resources to security concerns as its priority mission. Inspection 

and some other port-level staff have been diverted from detecting 

commercial violations to ensuring security. In addition, during higher alert 

levels (such as code orange and above), additional staff is also refocused to 

assist in port and national security.

CBP Targets Risky 

Countries, Manufacturers, 

Shipments, and Importers

CBP’s process of targeting high-risk activity begins by identifying the 

countries that supply textile imports that pose the greatest risk of illegal 

textile transshipment.11 Applying a risk-management approach, CBP 

targets shipments for review based on trade data, such as sudden surges of 

products restricted by quotas from nonquota countries, production data, 

10Public Law 103-182, title VI of the North American Free Trade Agreement Implementation 

Act, subtitles A, B. The Customs Modernization and Informed Compliance Act 1993 (also 

known as the “Mod Act”) places part of the responsibility for compliance on importers while 

requiring CBP, then known as Customs, to modernize its processes and technology to 

enforce trade laws.

11By identifying a country as high risk for textile transshipment, CBP is not making a 

determination that the country’s government is involved in transshipment. Rather, the 

significance of the trade and the intelligence data concerning certain of that country’s 

manufacturers identify the country as a potentially important transit point for transshipped 

goods. 
Page 10 GAO-04-345 Textile Transshipment

results of past factory and port inspections, suspicious patterns of 

behavior, and tips from the private sector. CBP then reviews the targeted 

shipments for evidence of transshipment, while expediting the processing 

of nontargeted shipments. From its country-level review, CBP targets 16 

countries per year on average, and actually visits 11 of them on average. 

For the countries CBP selects, it targets on average about 45 high-risk 

manufacturing plants to visit. These visits seek to find evidence of 

transshipment or to verify that the factories are in compliance with U.S. 

trade laws and regulations regarding the origin of the goods exported to the 

United States. If problems are found, CBP uses that information to target 

shipments (entries) entering the United States for possible detention and 

exclusion. CBP targeted 2,482 shipments in 2002. CBP has begun to target 

high-risk importers’ shipments for review while also conducting internal 

audits of selected importers. Figure 2 shows the general process CBP uses 

to target suspicious activity. 

Figure 2: CBP’s Process for Targeting Textile Transshipment

CBP Targets about 16 Countries 

Annually

Before the beginning of each fiscal year, CBP analyzes trade and 

production data, as well as other available intelligence, to assess the 

relative risk of each major U.S. trade partner for engaging in illegal textile 

transshipment. CBP generally identifies 16 countries a year on average as 

being at high risk for transshipment or other trade agreement violations 

and updates its assessment at least once during the fiscal year. The risk 

level (high, moderate, or low) is based largely on the volume of trade in 

Customs targets 

high-risk countries

(about 16 a year)

Source: GAO analysis of CBP information.

Customs targets 

high-risk foreign 

manufacturers in the 

high-risk countries for 

factory inspections

Customs targets 

high-risk shipments

at U.S. ports from 

manufacturers with 

problems found during 

inspections

Customs targets 

high-risk importers

for inspection of 

shipments or audits

Countries Manufacturers Shipments Importers
Page 11 GAO-04-345 Textile Transshipment

sensitive textile categories, such as certain types of knit apparel and fabric, 

and the likelihood of transshipment through that country. For example, as 

of November 1, 2003, quotas on men and women’s knit shirts and blouses 

were approximately 80 percent or more filled for China, India, and 

Indonesia. This situation creates an incentive for producers in those 

countries concerned that the quotas will close before the end of the year to 

transship their goods. CBP may increase its monitoring of trade in these 

products through neighboring countries. The likelihood of transshipment 

is a qualitative judgment that CBP makes based on available intelligence.

Countries with high production capabilities and subject to restrictive 

quotas and tariffs, such as China, India, and Pakistan, are considered 

potential source countries. These countries could produce and export to 

the United States far more textile and apparel products than U.S. quotas 

allow. Countries that have relatively open access to the U.S. market, either 

through relatively generous quotas (Hong Kong and Macau) or trade 

preferences programs (Central America and the Caribbean, and subSaharan Africa) are considered potential transit points for textile 

transshipment.12 CBP focuses its efforts on targeting and reviewing goods 

from these transit countries rather than source countries because any 

evidence that goods were actually produced elsewhere, such as closed 

factories or factories without the necessary machinery to produce such 

shipments, would be found in the transit country.

After selecting the high-risk countries, CBP then selects a subset of these 

countries to visit during the year to conduct TPVT factory visits. During 

the past 4 years, CBP conducted 42 TPVT visits to 22 countries. Cambodia, 

Hong Kong, Macau, and Taiwan in Asia, and El Salvador in Latin America 

received three or more visits between 2000 and 2003. Table 1 shows the 

U.S. trade partners that CBP visited on a TPVT trip in those years, along 

with their share of U.S. imports of textile and apparel products in 2002.13 

For some U.S. trade partners, their share of overall textile and apparel 

trade may be relatively low, but for certain products they are significant 

12Although a good may be physically transshipped through a country with available quota or 

tariff preferences, it is also possible that the good would never enter the transit country. 

Rather, the product’s documentation can be falsified to claim a certain country of origin 

without it ever entering that country.

13See appendix II for a list of top U.S. trade partners that supply textile and apparel products 

to the U.S. market.
Page 12 GAO-04-345 Textile Transshipment

suppliers. For example, although Thailand is the tenth largest supplier 

overall, it is the fifth largest supplier of cotton bed sheets.14

Table 1: U.S. Trade Partners Visited by Textile Production Verification Teams, 2000-

2003

14Due to an increase in imports of these products from Thailand, CBP selected Thailand for 

a TPVT visit. The visit uncovered that three of the top five exporters were illegally 

transshipping bed linens to the U.S. market. According to CBP, the Government of Thailand 

cooperated fully with U.S. authorities and revoked the companies’ export rights.

Partner

Number of 

TPVT visits, 

2000-2003

Rank in U.S. 

textile and 

apparel 

imports, 

2002

U.S. imports 

2002 

(million 

US$)

Share of 

U.S. imports 

2002

All Countries 42 $80,864 100%

Hong Kong 6 3 4,099 5

Macau 4 20 1,149 1

Taiwan 3 8 2,483 3

El Salvador 3 16 1,713 2

Cambodia (Kampuchea) 3 21 1,062 1

Honduras 2 7 2,513 3

Thailand 2 10 2,322 3

Guatemala 2 18 1,676 2

Vietnam 2 22 960 1

Nicaragua 2 31 434 1

Lesotho 2 38 321 a

Korea 1 6 3,275 4

Dominican Republic 1 12 2,252 3

Philippines 1 13 2,066 3

Bangladesh 1 15 2,017 2

Sri Lanka (Ceylon) 1 19 1,553 2

Mauritius 1 44 255 a

Republic of South Africa 1 46 220 a
Page 13 GAO-04-345 Textile Transshipment

Sources: U.S. Department of Commerce official trade statistics and CBP.

a

Indicates less than 1 percent of total U.S. imports of textile and apparel products. Imports are general 

imports measured at the entered Customs value.

The number of countries CBP visits each year has varied, but from 1996 

through 2003 CBP visited 11 countries per year on average. Although the 

overall size of trade is an important factor in targeting countries, CBP also 

looks at a range of information in making its determination. For example, 

several relatively small suppliers, such as Nicaragua, Swaziland, and 

Botswana, were visited because they receive special preferences as 

developing countries. Also, Vietnam, which only accounted for about 1 

percent of U.S. imports in 2002, was selected partly due to trade anomalies 

occurring during a period when Vietnam’s quota-free access to the U.S. 

market made it a potential transit country.15 Figure 3 describes the case of 

Vietnam as an example of the role and limitations of the targeting process. 

However, Canada and Mexico are both top U.S. trade partners and 

designated as high-risk countries, but CBP has not made any TPVT visits. 

Under the NAFTA, producers in these countries are subject to visits to 

verify NAFTA eligibility. However, these visits do not focus on 

transshipment specifically and although CBP has sought to send a TPVT 

visit to Canada, it has not yet been successful in persuading the Canadian 

government. 

Kenya 1 54 126 a

Madagascar 1 62 90 a

Swaziland 1 63 89 a

Botswana 1 108 6 a

15Between December 10, 2001, when Vietnam received lower tariff rates under normal trade 

relations, and July 17, 2003, when bilateral quotas were effective, there were no quotas on 

imports of Vietnamese textile and apparel products into the United States. Until December 

10, 2001, Vietnam was subject to higher tariffs reserved for countries with which the United 

States does not maintain normal trade relations.

(Continued From Previous Page)

Partner

Number of 

TPVT visits, 

2000-2003

Rank in U.S. 

textile and 

apparel 

imports, 

2002

U.S. imports 

2002 

(million 

US$)

Share of 

U.S. imports 

2002
Page 14 GAO-04-345 Textile Transshipment

Figure 3: CBP’s Monitoring of U.S.-Vietnam Trade Indicates Role and Limitations of Targeting

When Vietnam achieved normal trade relations (or nondiscriminatory tariff treatment) with the United States in December 2001, it also became more attractive 

as a location to manufacture textiles and apparel for export to the U.S. market, especially since quotas did not restrict these exports. As the graph below 

shows, Vietnam’s exports of textile and apparel products to the United States began to increase rapidly in January 2002. Monthly imports from Vietnam rose 

from an average of about $4 million per month between January 2000 and December 2001 to a peak of about $349 million in July 2003.

The STC monitored Vietnamese textile exports to the U.S. market and identified Vietnam as a high-risk country for textile transshipment in 2002. In September 2002, CBP conducted its first TPVT visit after Vietnam received normal trade relations treatment and generally found the same kinds of issues there as 

CBP finds in most high-risk countries, especially poor record-keeping. CBP continued to monitor Vietnam’s trade patterns, because Vietnam’s exports were 

growing very quickly. 

In February 2003, USTR began bilateral textile negotiations with Vietnam. About this time, CBP started having increased concerns about transshipment 

based on more concrete evidence. By the time USTR was finalizing an agreement in April 2003, CBP had serious concerns, according to a senior CBP 

official. When these concerns became public, a controversy ensued over whether the quota levels that had been negotiated based on Vietnam’s existing 

import levels may have been inflated with non-Vietnamese transshipped imports. The result was a provision in the bilateral agreement that the United States 

could reduce the quota by the amount of any transshipped imports it might identify. To this end, CBP responded with a major initiative to review and verify 

Vietnamese textile imports, including a TPVT with three teams for 3 weeks in August 2003. Of the 102 factories they visited, 6 were closed or refused entry, 

13 had their names used in counterfeit documents, and 18 were deemed high risk. CBP ports issued redelivery notices to 22 importers to return their merchandise to the ports for review. CBP also consulted the Vietnamese government about hundreds of questionable certificates of origin. 

This example indicates the strength of targeting in identifying transshipment, as well as the limitations in doing so only retrospectively, especially in highly 

fluid situations. CBP was able to find evidence of transshipment, but only after many months had passed. In addition, intelligence information also played 

an important role in discovering the transshipment, underscoring that having other information sources is important in supplementing the information gained 

from targeting and conducting TPVTs.

U.S. Monthly Imports of Textile and Apparel Products from Vietnam, January 2000 to August 2003
Page 15 GAO-04-345 Textile Transshipment

CBP Visits About 45 

Manufacturers Per Country

CBP targets about 45 factories on average per country visit, although this 

number varies depending on the characteristics of each country. For 

example, the proximity of factories to one another and the length of trip (1 

to 2 weeks) will affect the number of factories that can be visited. The 

importance of the trade partner in U.S. textile and apparel trade will affect 

the length of the trip and number of factories targeted. On the November 

2003 Hong Kong TPVT trip, for example, CBP visited over 200 factories. 

Before undertaking a TPVT visit in a foreign country, CBP conducts a 

special targeting session to identify the manufacturers in that country that 

it suspects may be involved in textile transshipment. Similar to its 

targeting of countries, CBP import and trade specialists consider the recent 

trade flows, available intelligence, experience from past factory visits, and 

reviews of merchandise at U.S. ports in order to narrow down from the 

total list of factories in the country to a list of the highest-risk factories that 

they will target for a visit.16 The process involves collaboration between 

the STC trade specialists, the port-level import specialists that will travel to 

the factories, and headquarters staff. 

During the past 4 years, CBP found that about half the manufacturers that it 

targeted as high risk were actually found by TPVT visits to have serious 

problems. These problems included actual evidence of transshipment, 

evidence that indicated a high risk of potential transshipment, permanently 

closed factories, and factories that refused admission to CBP officials. 

Each of these problems is considered a sufficient reason to review and 

detain shipments from these factories as they reach U.S. ports. In addition, 

some factories were found to warrant additional monitoring by the STC. 

They were listed as low risk and their shipments were not targeted for 

review when they reached U.S. ports. 

Although the share of targeted factories found to have problems is 

relatively high, the factories that CBP targeted were those that generally 

had some indication of risk, based on intelligence or trade data analysis. 

Also, the targeted manufacturers that were visited (about 1,700) during the 

4-year period generally make up a small share of the total number of 

manufacturers in each country. However, for smaller trade partners, such 

as those that receive trade preferences under the Caribbean Basin Trade 

16Import specialists generally are the port-level experts that are responsible for processing 

textile and apparel shipments and potentially detaining and examining the products and 

documentation before entry. Headquarters staff are also generally import specialists. 

International trade specialists conduct the trade data analysis and targeting at the STC.
Page 16 GAO-04-345 Textile Transshipment

Partnership Act (CBTPA) or African Growth and Opportunity Act (AGOA), 

CBP can visit a sizable share of the factories within the country because 

their overall number of factories is smaller. For El Salvador and Nicaragua, 

CBP has visited about 10 percent of the factories, and for Swaziland and 

Botswana, CBP has visited about 22 and 28 percent of the factories, 

respectively. 

Due to the small share of factories that CBP can actually visit, the STC says 

it is developing evaluation tools to improve CBP’s process of targeting 

foreign manufacturers for TPVT visits. Currently, the STC tracks the 

number and results of the TPVT visits in order to assess whether the 

targeted factories were actually found to have problems by the TPVT visits. 

CBP says it is developing a database to keep track of the specific criteria it 

used to target manufacturers for TPVT visits. It plans to use the results of 

the TPVT visits to identify which criteria were most useful in its targeting 

process. 

CBP Identified More Than 2,400 

Shipments in 2002

In 2002, CBP identified 2,482 high-risk shipments (entries) for greater 

scrutiny or review—less than one-tenth of 1 percent of the more than 3 

million textile and apparel entries that year. CBP actually reviewed 77 

percent of the shipments that were identified.17 Of the shipments reviewed, 

about 24 percent resulted in exclusions from U.S. commerce, 2 percent in 

penalties, and 1 percent in seizures. To choose shipments for review, CBP 

headquarters uses information collected from TPVT factory visits as well as 

other intelligence information to create criteria for its targeting system. 

When shipments match these criteria, they are flagged at the ports for a 

review.18 For instance, when a TPVT visit finds that a foreign factory has 

been permanently closed, CBP will place this information in its automated 

system to be used as criteria for targeting any shipments destined for entry 

into the United States that claimed to have been produced in that factory. 

In addition, other information such as prior shipment reviews or 

intelligence information concerning possible illegal activity by 

manufacturers, importers, or other parties can be entered as criteria to stop 

shipments. Criteria can be entered nationally for all ports, or individual 

ports can add criteria locally that only affect shipments to their own port.

17Not all shipments (entries) identified for review were actually inspected, since some were 

low-valued shipments that were exempted or entered during a security alert period in which 

nonsecurity inspections were limited. 

18“Review” refers to the entire process of analyzing entry documents, inspecting shipments, 

and verifying foreign production documents.
Page 17 GAO-04-345 Textile Transshipment

CBP Identifies High-Risk 

Importers for Review and Audit 

CBP has recently begun to increase targeting of U.S. importers of textile 

and apparel products who demonstrate patterns of suspicious behavior. 

For example, CBP identified more than 40 importers in the past year who 

have a pattern of sourcing from foreign manufacturers involved in 

transshipment. According to CBP officials, they can pursue penalties 

against these companies, because this pattern of behavior may violate 

reasonable care provisions19 of U.S. trade laws. CBP also uses this 

information and other intelligence it collects to target for review shipments 

that these importers receive. In addition to this targeting, CBP’s Regulatory 

Audit division has traditionally conducted internal control audits of 

importers, and it uses a separate targeting process to identify the importers 

that it will audit. One component of its audits focuses on whether the 

importer has and applies internal controls for transshipment. The STC has 

also provided information about the companies it targets to Regulatory 

Audit for its own investigations or audits. 

Number of Targets 

Identified Is Limited by CBP 

Resource Constraints 

Although CBP’s textile transshipment strategy relies on targeting, resource 

constraints limit both the number of targets that CBP generates and the 

type of targeting analysis that CBP can conduct. First, the number of 

foreign factories and shipments targeted is limited by the ability of CBP to 

conduct the reviews.20 As previously discussed, CBP is able to visit only a 

small share of the foreign factories exporting textile and apparel products 

to the United States. The results of these visits then provide key 

information for targeting shipments for review as they arrive at U.S. ports. 

Similarly, CBP targets only a small share of textile and apparel shipments 

to U.S. ports for review. CBP officials with whom we met said CBP limits 

the number of shipments it targets for port reviews because port staff are 

unable to effectively examine a significantly larger number of shipments.21 

19Reasonable care provisions require importers entering textile or apparel products into the 

commerce of the United States to ensure that the documentation covering the imported 

merchandise is accurate as to the country of origin. These provisions require that the 

importer not solely rely on information provided by the foreign supplier of the merchandise.

20Since no reliable estimates exist of the amount of imports that are illegally transshipped, 

CBP is unable to assess whether the number of inspections is a sufficient tool to detect and 

deter textile transshipment.

21In addition, CBP does not want to adversely affect importers by detaining shipments 

without some evidence of transshipment besides trade data anomalies. However, even if a 

shipment is not targeted, CBP port staff can still select the shipment for inspection.
Page 18 GAO-04-345 Textile Transshipment

In addition to resource constraints due to security (previously discussed), 

reviewing shipments for textile transshipment is labor intensive and 

involves more than a simple visual inspection of the merchandise. Unlike 

cases involving narcotics in which physical inspections alone can lead to 

discovery of the drugs, physical inspections of textile or apparel products 

rarely provide sufficient evidence of transshipment. Port staff generally 

needs to scrutinize detailed production documentation, which is time 

consuming, to determine a product’s origin and assess the likelihood of 

transshipment.22

Second, staff constraints restrict the extent to which CBP can utilize and 

develop its targeting process. As of December 2, 2003, the STC had 25 

percent of its staff positions unfilled (3 out of 12 positions), while its 

responsibilities are growing as trade agreements are increasing. For each 

new trade agreement, STC staff monitor trade and investment patterns to 

detect whether anomalies are developing that should be targeted. 

Consequently, CBP officials said that resource constraints have meant that 

several types of analysis that the STC planned on conducting have either 

been delayed or not conducted at all. These included analyses of high-risk 

countries, improvements to existing targeting processes, and studies of 

alternative targeting techniques. Despite these resource limitations, CBP 

and the STC, in particular, have made regular improvements to the 

targeting process. For example, CBP’s targeting of countries and 

manufacturers for TPVT visits has become more systematic, relying on 

trade data and other intelligence to select factories for visits. 

CBP Has Adapted 

Textile Review 

Activities to Changing 

Environment but Faces 

Further Challenges

CBP has consolidated textile functions at headquarters and has adapted 

textile review activities at the ports to changing resource levels. In 

response to national security priorities, CBP inspectors at the ports are 

being shifted to higher-priority duties, leaving import specialists at the 

ports to play the critical role in making decisions on excluding or seizing 

illegal textile shipments. CBP now relies on TPVT visits as an essential part 

of its targeting process, but CBP has not always finalized these TPVT 

22In addition, preference and free trade agreements have particular “rules of origin” 

requirements that must be met in order to obtain reduced or zero tariffs. These 

requirements are part of the complexity port staff face in determining whether 

transshipment has occurred. Rules of origin are the conditions that specify how a product 

must be produced or what materials must be used for the product to claim a particular 

country as its origin and qualify for trade preferences. 
Page 19 GAO-04-345 Textile Transshipment

results and provided them to CBP ports, CITA, and the foreign governments 

for follow-up in a timely manner. With the expiration of the WTO global 

textile quota regime in 2005, CBP will lose its authority to conduct TPVTs in 

the former quota countries, and supplementing the enforcement 

information provided to the ports will be important. Information from 

overseas Customs Attaché offices and cooperative efforts with foreign 

governments can provide additional important information for port 

inspections. 

CBP Has Consolidated Its 

Textile Activities Amid 

National Security Priorities

CBP has moved most textile functions into a single headquarters division to 

foster a coordinated agency approach to monitoring textile imports and 

enforcing textile import laws, but it must still depend on its port staff to 

identify and catch illegal textile transshipments. As CBP inspectors are 

shifted to higher-priority functions, such as antiterrorism and drug 

interdiction efforts, import specialists at the ports are playing an 

increasingly central role in scrutinizing the growing volume of textile 

imports. They review the entry paperwork for all textile imports covered 

by quotas or needing visas23 in order to exclude shipments that are 

inadmissible or to seize those that are illegal, according to port officials. 

However, resource constraints at the ports have forced them to depend 

increasingly on STC targeting, results of TPVTs, and information from 

headquarters to identify suspect shipments and enforce textile laws.

CBP Has Centralized Textile 

Transshipment Activities, but 

Ports Still Key

In 2001, CBP consolidated oversight of most of its textile operations into 

one headquarters division in the Office of Field Operations, creating the 

Textile Enforcement and Operations Division. One important exception to 

that consolidation was the Textile Clearinghouse in the New York STC, 

which remained in the Office of Strategic Trade. The Textile Enforcement 

and Operations Division is responsible for monitoring and administering 

textile quotas; providing technical input to textile negotiations; overseeing 

implementation of textile import policies at the ports; and for planning, 

reporting, and following up on TPVT visits. It uses the results of targeting 

by the STC, the findings of the TPVTs, and input from the ports to oversee 

23A textile visa is an endorsement in the form of a stamp on an invoice or export control 

license that is provided by an authorized official of a foreign government. It is used to 

control the exportation of textiles and textile products to the United States and to prevent 

their unauthorized entry into U.S. customs territory. A visa may cover either quota or 

nonquota merchandise; and conversely, quota merchandise may or may not require a visa, 

depending upon the terms of negotiated bilateral textile agreements with the particular 

country of origin.
Page 20 GAO-04-345 Textile Transshipment

the daily implementation of textile policy at the ports. It also works with 

CITA, the domestic textile industry, the importing community, and the 

Bureau of Immigration and Customs Enforcement (BICE).

Notwithstanding this, the critical point in identifying and preventing 

illegally transshipped textiles from entering the United States is at the 

ports. There are more than 300 CBP ports across the country—including 

seaports, such as Los Angeles/Long Beach, California; land border 

crossings for truck and rail cargo such as Laredo, Texas; and airports 

handling air cargo such as JFK Airport in New York, New York. The top 10 

of 42 CBP service ports that processed textile imports accounted for about 

75 percent by value of all shipments in 2002, according to the official trade 

statistics of the Commerce Department. The key staff resources for textile 

enforcement at the ports are the inspectors and the import specialists. 

Figure 4 provides an overview of CBP’s textile monitoring and enforcement 

process, including targeting, port inspections, and penalty investigations. 

The figure also provides data for the results obtained at each stage of the 

process in 2002. CBP processed about 3 million entries in that year, with 

2,482 entries triggering targeting criteria, of which 981 entries were 

detained, 455 excluded, and 24 seized.
Page 21 GAO-04-345 Textile Transshipment

Figure 4: An Overview of CBP’s Textile Monitoring and Enforcement Process, with Results for 2002

a

Data was not available on the number of criminal investigations and cases specifically involving textile 

transshipment.

As national security and counternarcotics concerns have become CBP’s top 

priorities, CBP inspectors’ roles have shifted away from textile and other 

commercial inspection. The result is that, even at the larger ports, fewer 

CBP inspectors are knowledgeable about a specific commodity, such as 

textiles. These inspectors now have less time and expertise to inspect 

textile shipments. For example, at all but one of the ports we visited, 

inspectors were mainly pulling sample garments from shipments for import 

At any point in the review or detention of an entry, 

entry can either be released into commerce or 

seized, depending on the circumstances. 

and/

or

or

Shipment presented 

for entry into U.S. 

commerce

(about 3 million entries 

in 2002)

All entries screened against 

targeting criteria

(2,482 hit targeting criteria in 2002)

Review at port

Targeting entries

Penalties and investigations

Entry into commerce Final actions

In-bond

Entry released into commerce

Entry seized

(24 entries, 

1 percent of targeted)

Entry reviewed or examined 

further 

(1,908 entries, 77 percent of targeted)

Entry formally detained

(981 entries, 40 percent of targeted)

Entry excluded

(455 entries, 18 percent of targeted)

Civil investigation and case

(71 CBP cases; 45 penalties)

Criminal investigation 

and casea

Sources: GAO, Nova Development, and Corbis.

Export

Shipments enter 

U.S. border to be 

transported inland for 

entry or export
Page 22 GAO-04-345 Textile Transshipment

specialists to examine rather than acting as an additional, knowledgeable 

source on textiles who could do a first level of review.

As a result, the import specialists have become more critical in preventing 

textile transshipment. About 900 import specialists work at the ports, of 

which approximately 255 are assigned to work on textiles, according to a 

senior CBP official.24 These specialists have always been central to 

determining whether illegal textile transshipment has occurred, because 

visual inspection is usually not sufficient. While physical clues such as cut 

or resewn labels can provide an indicator that a garment should be further 

examined, in many cases nothing about the garment itself indicates that a 

problem exists. To establish textile transshipment, import specialists must 

request production documents from the importer (who, in turn, requests 

them from the manufacturer) and review them to see if they support the 

claimed country of origin. This is a highly complex, technical, and laborintensive process.25

Import specialists (or at some ports, entry specialists or inspectors) review 

the basic entry paperwork for all textile shipments arriving at the ports that 

are covered by quotas or need visas.26 They will place a hold on a textile 

shipment:

1. if there are “national criteria,” that is, if headquarters has entered an 

alert in the Automated Commercial System (ACS), CBP’s computer 

system for imports, based on targeting, TPVT findings, and other risk 

factors, to detain all shipments from that manufacturer or to that 

importer and request production documents; 

24As of September 30, 2003, there were 892 import specialists. While approximately 255 

import specialists were assigned to textile teams, CBP estimates that only 214 handled 

textiles and wearing apparel exclusively. This is because many of the teams handle other 

commodities as well.

25The rule of origin determines the country of origin that can be claimed for goods that 

include components manufactured in more than one country. For apparel products, the 

country of origin is generally determined to be the country where the “most important” 

assembly process occurred. The import specialist reviews the production documents to be 

sure that they substantiate the requirements for claiming origin. In addition, free trade or 

preference programs may have additional requirements, such as using domestic or U.S. 

fabric, yarn, or thread. The rules of origin for any particular product differ under various 

free trade agreements and preference programs.

26They would also be reviewing any nonquota or nonvisa textiles that were presented for 

entry.
Page 23 GAO-04-345 Textile Transshipment

2. if there are “local criteria,” that is, the port has entered an ACS alert 

based on concerns particular to that port; 

3. if the port has conducted its own targeting on shipments arriving at the 

port and found questionable entries; 

4. if there are abnormalities in the paperwork that warrant further review; 

or

5. if there is other information that may be provided by domestic industry, 

the Office of Textiles and Apparel at the Commerce Department, CITA, 

foreign governments, or informants. 

In most cases, shipments with national criteria will automatically be 

detained, a sample pulled from the shipment, and production verification 

documents requested. For shipments held due to local criteria, port 

targeting, abnormalities, or other information, the import specialist may 

request that the CBP inspectors pull a sample from the shipment, which 

must be done within 5 days. The import specialist examines the sample 

garments and determines whether shipments being held can be released or 

require further review. If further review is warranted, they detain the 

shipment and send the importer a detention letter, in which they ask the 

importer to provide the production verification documentation for an indepth review. CBP must receive and review the documents within 30 days, 

or the shipment is automatically excluded. 

Based on the in-depth review of the documentation, the import specialist 

decides whether to release the goods into commerce, exclude them if 

found to be inadmissible, or seize them if found to be illegal. Goods are 

inadmissible and are denied entry when the importer has not provided 

sufficient information to substantiate the claimed country of origin or if 

documents required for entry have not been provided. Goods may be 

seized when the import specialist has evidence that the law has been 

broken; this requires a higher level of evidence than exclusion.

Port Staff Review “National 

Criteria” Shipments but Have 

Less Time for Local Monitoring

In the post-September 11, 2001, environment, the ports have become more 

likely to rely on national criteria. At all of the ports we visited, CBP 

officials said that, in response to national criteria in ACS for textile 

shipments, they will detain all such shipments and request production 

documents. However, only a few large ports that handle a high level of 

textile imports, such as Los Angeles/Long Beach and New York/Newark, 

have been able to do much proactive local targeting. At most of the other 
Page 24 GAO-04-345 Textile Transshipment

ports, officials said that they do as much local criteria or targeting as they 

can but rarely get the spare time to do very much. CBP data support these 

statements. While national criteria accounted for about 75 percent of 

inspections in 2002, local criteria and self-initiated reviews accounted for 

25 percent. Further, local criteria and self-initiated reviews had declined by 

half, from 2000 to 2002; and most of the local criteria in 2002 were 

generated by the ports in Los Angeles and New York. 

According to a senior CBP official, headquarters directs the input of 

national criteria to improve communications to the ports and foster greater 

uniformity of response and action by all affected ports. National criteria 

are continually tracked, analyzed, and adjusted as appropriate. One reason 

is that smaller ports have fewer import specialists; and in some cases, no 

import specialists are dedicated to specific commodities. In some ports, 

the import specialist is responsible for the entire range of products that can 

enter the country.

TPVTs Are Critical to 

Enforcement, but Follow-up 

Reporting Is Not Always 

Timely 

TPVTs are a critical enforcement tool, and the conduct and reporting of 

TPVT visits have been made more uniform and rigorous in recent years. 

However, while the TPVT reports are an important part of the targeting 

process, they are not always provided in a timely manner to CBP ports, 

CITA, and the foreign governments. 

TPVT Process Triggers Port 

Textile Reviews

TPVTs are critical to enforcement because the ports increasingly depend 

on the national criteria that headquarters supplies to trigger enforcement. 

These national criteria primarily result from STC targeting and the findings 

of the TPVTs conducted in high-risk countries. Additionally, CBP may 

receive enforcement information provided by a foreign government or 

other sources.

The TPVT process has two main objectives: (1) to verify that the 

production capacity of the factory matches the level and kind of shipments 

that have been sent to the United States and (2) to verify production of the 

specific shipments for which they have brought copies of the entry 

documents submitted to CBP. If a factory is closed, refuses entry, or the 

team finds evidence of transshipment, the team immediately notifies 

headquarters so that national criteria can be entered into ACS. Any further 

shipments from the closed factories will be excluded. Shipments from 

factories refusing entry or found to be transshipping will be detained, and 

importers will be asked for production verification documents. If a factory 

is deemed to be at high risk for transshipment, but no clear evidence has 
Page 25 GAO-04-345 Textile Transshipment

been found, CBP has generally waited until the TPVT report is approved 

before entering the criteria.27 Figure 5 shows a TPVT team verifying 

production in El Salvador textile factories.

Figure 5: TPVT Officials Verifying Production in El Salvador Textile Factories, in July 2003

27According to a senior CBP official, this provision was implemented in a flexible manner, so 

that in some cases, if a high-risk factory were deemed sufficiently risky, they would 

immediately enter criteria.

Source: GAO.

A BICE special agent participating in the TPVT examines rolls

of fabric for country of origin.

The team investigates the contents of a truck supplying a textile 

factory.

Workers sewing apparel in an El Salvador textile factor.
Page 26 GAO-04-345 Textile Transshipment

TPVT report drafting and approval involves several steps. First, the import 

specialists on the team write the initial draft of their TPVT results report 

while in country. When the team members return to their home ports, the 

team leader completes the report and forwards it to headquarters, where it 

is reviewed, revised, and finally approved by CBP management. Once the 

TPVT report is approved, the remaining national criteria for the high-risk 

factories are entered into ACS. 

TPVT Follow-Up Is Not Always 

Timely

CBP’s standard operating procedures for TPVTs, dated September 21, 2001, 

state that the TPVT team leader should finalize the reports within 21 

calendar days after completing the trip and get headquarters approval 

within 2 weeks afterwards, or 5 weeks total. However, when we examined 

the approval timeline for TPVT reports during the past 4 years, we found 

that, in practice, report approvals have averaged 2.3 months, or almost 

twice as long as the procedural requirement. For example, the El Salvador 

TPVT we observed was conducted from July 21 through August 1, 2003, but 

headquarters did not approve the TPVT report until October 20, 2003. 

More importantly, during such interim periods, although national criteria 

have been identified for high-risk factories, they are generally not entered 

into ACS until the report is approved within CBP.28 The result is that 

questionable shipments for which criteria are intended can continue to 

enter commerce for another 2.3 months on average. From 2000 to 2003, an 

average of 37 percent of TPVT-generated criteria were for high-risk 

factories. This means that import specialists at the ports may not see more 

than a third of the criteria for about 2.3 months after the TPVT visits. At 

that time, if examination of these high-risk factories’ production 

documents show transshipment of textiles during the interim period, the 

import specialists will not be able to exclude these shipments, because 

they will have already entered commerce. Instead, import specialists will 

have to ask for redelivery by the importer to the port. At that point, most 

garments will likely have been sold. Although, according to CBP, it can 

charge the importer liquidated damages29 for failure to redeliver, additional 

transshipped garments will have entered commerce nevertheless.

28In some instances, import specialists have immediately entered criteria for high-risk 

factories of particular concern, according to a senior CBP official.

29“Liquidated damages” are a charge against the bond for a breach of a bond condition. 
Page 27 GAO-04-345 Textile Transshipment

CITA Uses TPVTs to Generate 

Information Exchange with 

Foreign Governments

The TPVT reports are also sent to CITA and trigger another set of actions in 

the textile enforcement process. If the TPVT cannot verify the correct 

country of origin in all shipments being investigated, then CITA will ask the 

foreign government to investigate, which also provides it with an 

opportunity to respond before CITA takes an enforcement action. CITA’s 

goal is to get foreign governments to monitor and control their own 

plants—essentially to self police. According to a CITA official, if the 

government does not provide a satisfactory response, CITA is then 

obligated to direct CBP to exclude the illegal textiles.30 

When CBP provides CITA with information that the TPVT (1) was refused 

entry to the factory, (2) found evidence of textile transshipment, or (3) 

found the factory was unable to produce records to verify production, CITA 

will send a letter to the foreign government requesting that it investigate 

whether transshipment has occurred and report back to CITA.31 The 

foreign government has 30 days to respond; if there is no response, CITA 

can also direct CBP to block entry of that factory’s goods, generally for 2 

years. In such cases, CBP ports do not even have to review production 

documents first; the goods will be denied entry. Notice of this prohibition 

is published in the Federal Register to inform U.S. importers. 

When CITA sends a letter to the foreign government, CITA officials said 

that most governments respond with an investigation of the manufacturer. 

Sometimes governments penalize the factory with a suspended export 

license, or they report back that the factory has closed. As long as they are 

taking steps to prevent further transshipment, CITA is satisfied, according 

to CITA officials.

CITA officials stated that TPVT reports are essential to CITA’s efforts to 

address illegal transshipment and that CBP has made progress in providing 

CITA, through the TPVT reports, with useful information to identify suspect 

factories and to determine the nature and extent of illegal transshipment. 

However, CITA officials continue to seek improvement in these reports, in 

particular for the reports to contain factual, verifiable information with 

definitive conclusions regarding whether a visited factory is involved in 

illegal transshipment and for this information to be provided clearly and 

30Under 19 C.F.R. 12.130, CBP, then known as Customs, is required to make a country-oforigin determination before allowing entry of textiles and textile products.

31When TPVTs find the factory was closed, it results in automatic criteria and exclusion. 

CITA does not have to be consulted first, and it would not be included in the CITA letter.
Page 28 GAO-04-345 Textile Transshipment

concisely. While CITA officials acknowledged that it may be extremely 

difficult to CBP to find a “smoking gun” necessary to make this type of 

conclusion, CITA officials believe that increased clarity and more definitive 

conclusions are possible. Also, delay in receiving the reports hamper 

prompt action by CITA, and CBP in many instances does not advise CITA of 

follow-up action it has taken against factories that the CBP found to be 

unable to verify production or otherwise suspect.

A CITA official estimated that about one-half to three-quarters of TPVTs 

result in CITA letters. He estimated that CITA sent about six to seven 

letters between October 2002 and October 2003.32 Overall, CBP’s TPVTs 

and TPVT reports are more geared toward providing CBP with national 

criteria, as recognized by a CBP official. However, CITA officials said that 

they need more detailed evidence to better support CITA enforcement 

actions. 

Information from Attaché 

Offices, Cooperation of 

Foreign Governments 

Crucial

CBP faces further challenges to which it must adapt with the expiration of 

the Agreement on Textiles and Clothing—the global textile quota regime—

on January 1, 2005. The end of the quota regime will mean that the United 

States will also lose its authority under that agreement to conduct TPVTs in 

former quota countries, unless customs cooperation provisions with the 

foreign governments are renewed. CBP has other means by which it can 

supplement the enforcement information it receives from targeting and 

TPVTs, including placing import specialists in overseas Customs Attaché 

offices in high-risk countries and obtaining greater foreign government 

cooperation. 

End of Global Quota Regime 

Could Affect CBP’s Cooperation 

with Foreign Governments

Finding means of supplementing the enforcement information provided to 

CBP ports will be critical once the global textile quota regime, embodied in 

the WTO Agreement on Textiles and Clothing, expires on January 1, 2005. 

The numerous U.S. bilateral quota agreements with WTO-member textile 

exporting countries were all subsumed in the global regime. The textile 

enforcement provisions in these agreements provided the authority for 

CBP to conduct TPVTs. All of these provisions will expire together with 

the global textile quota regime. CBP will have continued authority to 

conduct TPVTs in countries with free trade agreements and preference 

32A CITA letter to a foreign government may include requests to investigate more than one 

factory.
Page 29 GAO-04-345 Textile Transshipment

agreements (such as the Caribbean Basin Trade Preference Act), as well as 

in non-WTO countries whose bilateral quota agreements will not expire 

(such as Vietnam). 

However, certain incentives for transshipment will continue to exist. For 

example, special provisions that apply to imports of Chinese textiles have 

recently been invoked under the safeguard provision of China’s Accession 

Agreement to the WTO to limit growth of imports of certain textile 

categories.33 The safeguard provision allows individual categories of 

textiles to remain under quota for up to an additional 12 months, if the 

domestic industry petitions CITA for relief and CITA affirms the petition. 

The petition must establish that imports of Chinese origin textiles and 

apparel products are threatening to impede the orderly development of 

trade in these products, due to market disruption.34 

The U.S. government currently maintains a Memorandum of Understanding 

with Hong Kong under which customs cooperation has been conducted. 

Given the possibility of additional safeguard quotas being imposed on 

Chinese textiles after the global quota regime expires, it will be critical that 

U.S.-Hong Kong customs cooperation continues. However, the United 

States does not have such memorandums of understanding with other highrisk countries in the region, such as Taiwan, Macau, and Bangladesh. CBP 

will no longer have the authority to conduct TPVTs in these high-risk 

countries unless customs cooperation agreements are renewed. 

33The Accession Agreement textile and apparel safeguard allows U.S. and other WTO 

member countries that believe imports of Chinese origin textile and apparel products are, 

due to market disruption, threatening to impede the orderly development of trade in these 

products to request consultations with China to ease or avoid such market disruption. Upon 

receipt of the request, China has agreed to hold its shipments to a level no greater than 7.5 

percent (6 percent for wool categories) above the amount entered during the first 12 

months of the most recent 14 months preceding the request for consultations. The limit is 

effective beginning on the date of the request for consultation and may not remain in effect 

for more than 1 year, without reapplication, unless otherwise agreed between the United 

States and China. The domestic industry has the right to petition for safeguard relief until 

Dec. 31, 2008, including reapplying for additional years of protection for categories that 

have quota imposed. 

34As of November 1, 2003, the domestic textile industry had already applied for safeguards 

for four categories of textiles that had been removed from quotas in 2002. CITA reviewed 

three petitions received on July 24, 2003, related to knit fabric, dressing gowns, and 

brassieres, and declined to review a fourth petition for cotton gloves. On November 17, 

2003, CITA approved the three petitions it had reviewed.
Page 30 GAO-04-345 Textile Transshipment

CBP Has Other Possible Means 

to Supplement Its Enforcement 

Information

CBP has sought to supplement the enforcement information it receives by 

placing some import specialists in overseas Customs Attaché offices in 

high-risk countries and by obtaining greater foreign government 

cooperation. CBP started sending import specialists to its overseas 

Customs Attaché offices in 2000. The reason for this effort was that most 

staff in the Customs Attaché offices were special agents who were criminal 

investigators and had no trade background. Import specialists were to 

provide this missing trade experience. CBP identified the countries that 

would most benefit from having an import specialist in the Attaché office, 

and by November 2003, six import specialists were assigned to Canada, 

Hong Kong, Japan, Mexico, Singapore, and South Africa.

A CBP official said that the import specialists are assisting with providing 

information. They have been able to help in following up on TPVT findings. 

They also have been useful in uncovering counterfeit visa cases in which 

fake company names and addresses are given in import documents. If 

more import specialists were in Customs Attaché offices in high-risk 

countries to assist with textile monitoring and enforcement, additional 

benefits would result, according to the CBP official. In between TPVT 

visits, they would be able to assist the targeting effort with activities such 

as checking to see whether a particular factory really exists or has the level 

of capacity claimed. They could also verify factory addresses and 

licensing. Finally, they would be able to facilitate cooperation and 

coordination with the foreign government on textile transshipment issues, 

including conducting training on transshipment prevention. 

Another means by which CBP can also supplement the enforcement 

information it receives is by encouraging foreign government cooperation 

and self-policing. A good example of such an arrangement is CBP’s present 

relationship with Hong Kong customs authorities. The Hong Kong Trade 

and Industry Department has established an extensive system for 

regulating Hong Kong’s textile industry, which it enforces together with the 

Customs and Excise Department. Hong Kong officials work closely with 

the U.S. Customs Attaché Office in Hong Kong and CBP’s Textile 

Enforcement and Operations Division at headquarters. Hong Kong also 

provides self-policing assistance to CBP. Hong Kong officials conduct 

follow-up investigations on findings by the TPVTs, called Joint Factory 

Observation Visits in Hong Kong, which have resulted in numerous 

cancelled or suspended export licenses. Hong Kong officials have also 

actively prosecuted and convicted individuals violating Hong Kong’s textile
Page 31 GAO-04-345 Textile Transshipment

transshipment laws.35 As it is a matter of public record, CBP gets the names 

of those companies that have been convicted of violations. Macau and 

Taiwan also provide CBP with such information. CBP creates national 

criteria for these manufacturers, and the ports would detain any future 

shipments for production verification documentation. Figure 6 shows the 

high volume of commercial traffic coming into Hong Kong from Shenzhen, 

China, at the Lok Ma Chau Control Point.

Figure 6: Main Hong Kong-China Commercial Control Point at Lok Ma Chau, August 

2003 

However, it is not clear whether many other high-risk countries have the 

capacity to self-police. In some countries, customs authorities may be 

constrained by domestic laws that either limit their authority or do not 

35It is a violation of Hong Kong law to falsely claim Hong Kong as a country of origin for 

textiles, according to Hong Kong officials. See later discussion of penalties and Customs’ 

administrative list for further details.

Source: GAO.

The view from the roof of the Hong Kong control point on the border with Shenzhen, China, showing 

the high volume of commercial truck traffic coming into Hong Kong from China. Shenzhen is seen in 

the background.
Page 32 GAO-04-345 Textile Transshipment

extend sufficient authority to adequately enforce textile transshipment 

provisions in their bilateral agreements with the United States. For 

example, government officials in El Salvador said that they do not have the 

same authority that U.S. CBP has in requesting production documentation 

from Salvadoran factories, because such authority is not provided in their 

customs laws. Such lack of authority was also an issue that USTR 

addressed when it negotiated the U.S.-Singapore Free Trade Agreement 

(FTA), finalized in 2003. CBP, which is a technical advisor to such 

negotiations, encouraged the addition of a provision to require the 

government of Singapore to enact domestic legislation that provided the 

authority needed to fully enforce the agreement’s textile transshipment 

provisions. 

The United States is currently negotiating numerous new FTAs. As with the 

Singapore FTA negotiations, USTR may be able to include such provisions 

in new FTAs, providing an opportunity for the United States to buttress 

textile transshipment enforcement provisions and enhance the ability of 

foreign governments to conduct more effective self-policing. Such 

provisions have generally been included in the FTAs negotiated since 

NAFTA, according to a senior CBP official.

Weak Internal Controls 

Hinder Effectiveness of 

CBP’s In-bond System

CBP uses its in-bond system to monitor cargo, including foreign textiles, 

transiting the U.S. commerce or being exported to a foreign country. 

However, weak internal controls in this system enable cargo to be illegally 

diverted from the supposed destination, thus circumventing U.S. quota 

restrictions and duties. At most of the ports we visited, CBP inspectors we 

spoke with cited in-bond cargo as a high-risk category of shipment because 

it is the least inspected and in-bond shipments have been growing. They 

also noted that CBP’s current in-bond procedures allow too much reliance 

on importer self-compliance and that little actual monitoring of cargo using 

this system takes place. Lack of automation for tracking in-bond cargo, 

inconsistencies in targeting and examining cargo, in-bond practices that 

allow shipments’ destinations to be changed without notifying CBP and 

extensive time intervals to reach their final destination, and inadequate 

verification of exports to Mexico hinder the tracking of these shipments. 

Although CBP has undertaken initiatives to tighten monitoring, limitations 

continue to exist. These limitations pose a threat not only to textile 

transshipments but also to other areas related to national security. Without 

attention to this problem, enforcement of national security, compliance 

with international agreements, and proper revenue collection cannot be 

ensured.
Page 33 GAO-04-345 Textile Transshipment

In-bond System Designed to 

Expedite Flow of 

Commerce

To expedite the flow of commerce into the United States, Congress 

established in-bond movements to allow cargo to be transported from the 

port of arrival to another U.S. port for entry into U.S. commerce or for 

export to a foreign country.36 Cargo can be transported in several ways 

using the in-bond system. When a vessel arrives with containers, an 

importer may elect to use the in-bond system to postpone payment of taxes 

and duties while moving the goods from the original port of arrival to 

another port. By doing this, the importer delays paying duties until the 

goods are closer to their ultimate destination—for example, goods arriving 

by ship in Los Angeles may transit the country and ultimately be inspected 

and have duties levied in Chicago. Or goods may pass through the United 

States on their way to another destination, such as goods that are 

transported from Los Angeles to Mexico or from Canada to Mexico. 

There are three types of in-bond movements:

• Immediate transportation (I.T.). This is merchandise that is moved 

from one U.S. port to another for entry into U.S. commerce.

• Transportation and exportation (T&E). This is merchandise “in 

transit” through the United States. Export to another country is 

intended at the U.S. destination port. 

• Immediate exportation (I.E.). This is merchandise exported from the 

port at which it arrives in. 

Once the shipment leaves the port of arrival, the bonded carrier37 has 30 

days to move the merchandise to the U.S. destination port. Upon arrival at 

the destination port, the carrier has 48 hours to report arrival of 

merchandise. The merchandise must then be declared for entry or 

exported within 15 days of arrival (see fig. 4).

36See 19 U.S.C. 1552 and 1553.

37A bonded carrier is a carrier company that is allowed to move goods that have not been 

entered into commerce from one place to another under a Customs bond. A Customs bond 

is a contract between all parties that import merchandise and CBP; it is given to insure the 

performance of an obligation or obligations imposed by law or regulation, backed by a 

monetary guarantee.
Page 34 GAO-04-345 Textile Transshipment

Use of the In-Bond System 

Growing Rapidly

Based on responses from our survey of 11 of 13 major area ports, the use of 

the in-bond system as a method of transporting goods across the country 

nearly doubled from January 2002 through May 2003. For our study, we 

surveyed the 13 ports across the country that process the largest amount of 

textiles and apparel and asked them about in-bond operations at their port. 

Figure 7 shows the increase in in-bond shipments processed in the past 17 

months at 11 of these ports.38 From January 2002 through May 2003, inbond entries increased 69 percent. A recent study on crime and security at 

U.S. seaports estimated that approximately 50 percent of all goods entering 

the United States use the in-bond system and projects that this figure will 

increase.39 

Figure 7: Total In-bond Entries for 11 Major U.S. Ports, January 2002-May 2003

38Data for Miami, Florida and Charlotte, North Carolina were excluded because they did not 

have complete data for this period. 

39Report of the Interagency Commission on Crime and Security in U.S. Seaports, Fall 2000. 
Page 35 GAO-04-345 Textile Transshipment

Note: This graph represents growth for 11 major U.S. ports and may not be representative of overall 

in-bond growth across all CBP ports.

Based on our survey, the top three U.S. ports that were the most frequent 

reported destinations for in-bond shipments from October 2002 to May 

2003 were Miami, New York, and Los Angeles. In-bond entries comprised a 

significant portion of the total entries for these ports, with 58.2 percent of 

total entries in Miami, 60 percent in New York, and 45.9 percent in Los 

Angeles. For goods arriving at the Los Angeles-Long Beach seaport, the 

top three intended in-bond destination ports for fiscal year 2002 were 

Chicago, New York, and Dallas-Fort Worth, Texas.

In-bond System May 

Facilitate Textile 

Transshipment

Many officials at the ports we surveyed expressed concern in their 

responses over the growth of in-bond shipments and their lack of 

additional resources to examine and track these shipments. In addition, 

some port officials we spoke with also expressed concern that the in-bond 

system is increasingly being used for diverting goods that are quota 

restricted (such as textiles) or that have high duty rates. 

One example of how illegal in-bond diversion occurs is when textile 

shipments arrive by vessel at Los Angeles and are transported by truck to a 

port such as Laredo, Texas, where the carrier (trucking company) may 

declare immediate exportation to Mexico (see fig. 5). However, instead of 

exporting the goods to Mexico, they are shipped to another U.S. location 

for sale. This can occur because CBP relies heavily on importer 

compliance, and it requires only that carriers drop off paperwork showing 

exportation, without actually requiring physical inspection of the cargo.40 

40Since our investigation began, CBP has issued Directive 3240-036A requiring that 

merchandise declared for exportation (T&E and I.E. shipments) be physically inspected 

before the merchandise can be exported to Mexico. As of October 20, 2003, all merchandise 

must be presented to CBP before export certification. 
Page 36 GAO-04-345 Textile Transshipment

Figure 8: Example of In-bond Diversion of Goods Supposedly Going to Mexico

CBP and BICE presently have ongoing investigations to address the 

problem of illegal diversion of in-bond merchandise. For example, a 2003 

in-bond diversion investigation found that 5,000 containers of apparel were 

illegally imported, thus avoiding quota restrictions and payment of $63 

million in duties. Between May 2003 and October 7, 2003, the ports of Long 

Beach and El Paso made 120 seizures with cases involving a textile in-bond 

diversion smuggling scheme. The total domestic value for these goods was 

more than $33 million. Table 2 shows the number of in-bond cases and the 

penalty amounts assessed by CBP for the past 3 fiscal years. Total penalty 

amounts assessed were more than $350 million.

Los Angeles

MEXICO

Shippers/

exporters

Sources: GAO and Nova Development. 

Laredo

CBP 

documentation 

signed by 

inspectors and 

cleared without 

prior physical 

inspection of 

container

Departs CBP 

port without 

physical inspection

Containers 

unloaded and 

stored at 

warehouse

Containers held 

at warehouse

Textiles entered 

back into U.S. 

commerce, 

avoiding duties 

and quotas

1

2

3

4

5
Page 37 GAO-04-345 Textile Transshipment

Table 2: Total number of In-bond Cases and Assessed Amount for Liquidated 

Damages, 2001-2003

Source: U.S. Customs and Border Protection.

Note: An insured party must pay “liquidated damages”—or a monetary fine– to CBP if the insured 

party has breached the terms of the bond. 

In-bond System Lacks 

Automation and Critical 

Information to Properly 

Monitor Cargo Movement 

At present, CBP lacks a fully automated system that can track the 

movement of in-bond transfers from one port to another. Much shipment 

information must be entered manually—a time-consuming task when 

thousands of in-bond shipments must be processed every day—and as a 

result, recorded information about in-bond shipments is minimal and 

records are often not up to date. In addition, in-bond arrival and departure 

information recording is not always timely; and according to our survey 

results, insufficient cargo information, along with a lack of communication 

between U.S. ports about in-bond shipments, makes it difficult for ports of 

destination to monitor cargo and know the number of in-bond shipments to 

expect. CBP has begun to automate its in-bond system but concerns 

remain.

Under Current CBP Procedures, 

In-bond Shipments Transit with 

Minimal Information Provided to 

CBP 

By definition, an in-bond movement is entry for transportation without 

appraisement. CBP collects significantly less information on in-bond 

shipments than regular entries that are appraised. While CBP has the 

ability to collect additional information for textile products, our survey 

results show that very little information is collected by CBP for in-bond 

shipments in general. 

To process an in-bond shipment, all in-bond paper transactions require a 

Customs Form 7512, Transportation and Entry form. This form is filled out 

by brokers and submitted to the port of arrival. According to many in-bond 

personnel responding to our survey, the information that is provided on 

this form to allow the shipment to travel in-bond is often minimal, 

capturing some, but not all, shipment manifest information, shipment data, 

and carrier data. They also responded that the information on the Customs 

Form 7512 is often vague, with not enough descriptions of the commodities 

Fiscal year Total number of in-bond cases

Total assessed amounts for 

liquidated damages

2001 3,466 $93,696,618

2002 2,677 151,292,457

2003 3,717 64,226,161
Page 38 GAO-04-345 Textile Transshipment

shipped. The form also lacks any invoice or visa information—information 

that is critical for shipment targeting. This lack of information causes 

difficulty in tracking. Without this information, CBP is unable to effectively 

track in-bond shipments.41

In-bond shipments of textiles or textile products have specific description 

requirements. CBP regulations require that these shipments be described in 

such detail as to allow the port director to estimate any duties or taxes due. 

In addition, the port director may require evidence of the approximate 

correctness of value and quantity or other pertinent information.42 

However, our survey results show that such additional information has not 

been obtained in practice.

CBP’s Recording of Arrival and 

Departure In-bond Information 

Is Not Always Timely 

In-bond data are not entered in a timely, accurate manner, according to 

some port in-bond personnel we spoke with, as well as some survey 

respondents. Currently, CBP accounts for goods that initially arrive at one 

CBP port (port of arrival) but are shipped immediately to the port of entry 

(port of destination) through an in-bond module in CBP’s ACS.43 For 

automated entry forms submitted on electronic manifests, departure data 

can be entered in ACS automatically showing that an in-bond transfer is 

planned from the port of arrival. For nonautomated entries (paper), CBP 

officials are supposed to input departure data manually at the port of 

arrival to establish accountability for the merchandise. When the goods 

arrive at the port of destination, personnel are to input data indicating that 

the goods have arrived, at which time accountability is transferred from the 

port of arrival to the port of destination. 

However, at three of the seven ports we visited, officials stated that the 

departure and arrival information was not consistently maintained, 

because personnel did not input data promptly. As the volume of 

shipments transiting via in-bond has increased, the workload for ports 

41CBP issued a directive in August 2003 requiring all CBP officers reviewing Form 7512 

documents to ensure that all required information is furnished and correct at time of 

presentation.

4219 C.F.R. 18.2 (b), 18.11 (e).

43ACS is CBP’s current automated import system. Originally designed in 1984, ACS will be 

replaced in order for CBP to be able to meet the increasingly complex, long-term 

requirements resulting from the growth in trade, enforcement responsibilities, and 

legislation. Consequently, the first modernization project will focus on the trade system, 

replacing ACS with the Automated Commercial Environment (ACE).
Page 39 GAO-04-345 Textile Transshipment

across the country to enter this information has created a backlog, often 

resulting in entries that are never entered into the system. More than half 

of the 29 ports we surveyed reported that between 50 and 100 percent of 

their in-bond entries were paper entries. At two of the largest ports 

processing the highest volume of in-bond entries, officials reported that 

more than 75 percent of the entries received were paper entries requiring 

that staff manually enter information. CBP personnel at two major ports 

told us that in-bond data are often not entered into the system at the port of 

arrival, because CBP lacks the personnel to enter in-bond information for 

every shipment. 

Communication between Ports 

Regarding In-bond 

Arrival/Departure Data Is 

Minimal 

Results from our survey showed that 80 percent of the ports did not track 

in-bond shipments once they left the port of arrival. A CBP official at the 

Port of Laredo, Texas, a major port of destination, said that they have no 

way of knowing the number of shipments intended to arrive at their port. 

Without proper communication between them, ports are unable to 

determine the location of a shipment traveling in-bond until it reaches its 

destination. As a result, personnel at the port of destination were unable to 

anticipate a shipment’s arrival and thereby identify and report any delayed 

arrivals, because a record of departure had never been set up. However, 

some ports such as Laredo, Texas are beginning to communicate with other 

ports more frequently to anticipate and track in-bond shipments. 

Finally, although CBP has computer-generated reports available to identify 

in-bond shipments that were not reported and closed within the required 30 

days, 70 percent of ports we surveyed report that they have never used 

these reports. They said they do not do so because (1) they either did not 

consider the report to be reliable or (2) they had never heard of these 

reports. Tracking overdue shipments is a critical internal control, because 

it alerts CBP to shipments that never made it to their stated destinations. 

Without consistent examination of overdue shipments, CBP cannot 

account for in-bond shipments that failed to meet the time requirements for 

delivery.
Page 40 GAO-04-345 Textile Transshipment

We reported these limitations in 1994 and 1997, and we made several 

recommendations to CBP on improving the monitoring of in-bond 

shipments.44 In 1998, CBP initiated the TINMAN Compliance Measurement 

Program to address some of the weaknesses noted in our 1997 report, 

including the ability to generate reports to follow-up on overdue shipments. 

In 2001, the Treasury Department’s Inspector General conducted a financial 

management audit and found that although TINMAN resolved some of the 

weaknesses found in prior audits, CBP was still unable to ensure that 

goods moving in-bond were not diverted into U.S. commerce, thereby 

evading quotas and proper payment of duties. Results from our survey 

show that this compliance program is not consistently implemented across 

ports. 

CBP Is Making Progress in 

Automating Its In-bond System; 

However, Concerns Remain 

In March 2003, CBP launched an initiative to automate the in-bond system 

with a pilot program called the Customs Automated Form Entry System 

(CAFÉ’s), currently being tested at six U.S. ports.45 CAFÉ’s is an interim 

step toward full automation. It is intended to allow more detailed shipment 

data to be entered into the system electronically, thus reducing the amount 

of time personnel must spend entering shipment data. The CAFÉ’s 

program is currently voluntary, and, so far, about 8 to 10 percent of the 

brokers at the pilot ports are participating. However, according to a 2003 

CBP Action Plan, all land border truck ports will be required to use the 

automated in-bond system by midyear 2004. Nevertheless, no time frame 

yet exists for deploying CAFÉ’s at other locations. 

Although CAFÉ’s will improve automation of the in-bond system, it will not 

resolve the tracking of in-bonds until full automation occurs. When we 

spoke to CBP headquarters officials about this continuing weakness, they 

stated that they had not made additional improvements to the in-bond 

program, because those improvements will be made when their new 

Automated Commercial Environment (ACE) computer system is rolled out. 

CBP stated that it does not have a time frame for deploying the system to 

44See U.S. General Accounting Office, Examination of Customs’ Fiscal Year 1993 

Financial Statements, GAO/AIMD-94-119 (Washington, D.C., June 15, 1994); U.S. General 

Accounting Office, Financial Management: Control Weaknesses Limited Custom’s Ability 

to Ensure That Duties Were Properly Assessed GAO/AIMD-94-38 (Washington, D.C. March 

7, 1994); and U.S. General Accounting Office, High-Risk Program: Information on Selected 

High-Risk Areas HR-97-30 (Washington, D.C., May 16, 1997).

45Pilot testing is being conducted in three seaports and three land ports: Los Angeles, 

California; New York, New York; Miami, Florida; Port Huron, Michigan; Buffalo, New York; 

and Laredo, Texas.
Page 41 GAO-04-345 Textile Transshipment

fully automate in-bonds because development is still under way but it 

estimated this might be accomplished within 3 years. Without a definite 

time frame, it is not clear if the automation of in-bonds will actually be 

implemented.

In-bond Shipments Are Not 

Consistently Targeted and 

Examined Before Leaving 

the Arrival Port

Although all incoming cargo is targeted for national security purposes, 

once the paperwork is filled out for a shipment to travel in-bond, CBP does 

not generally perform any additional targeting for these shipments. CBP 

instead focuses on targeting shipments making an official entry into U.S. 

commerce. The New York STC also does not analyze information from inbond shipments in order to perform additional targeting. Conducting 

additional targeting for in-bond is also critical because in-bond shipments 

that are not identified as high-risk shipments by Container Security 

Initiative may go through CBP undetected and without inspection. 

Recognizing the need for targeting in-bond shipments, some ports we 

surveyed responded that they have begun to target in-bond shipments. 

However, targeting is not consistently performed because ports do not 

have the staff to conduct targeting or exams. Port management officials we 

spoke with at two major ports stated that since the September 11 attacks, 

resources have shifted to other antiterrorism areas. In addition, because 

brokers for in-bond shipments at the port of arrival provide very little 

information regarding shipments, targeting of in-bond shipments is difficult 

to conduct (See fig. 9 for illustration of in-bond shipment process and 

points of concern).
Page 42 GAO-04-345 Textile Transshipment

Figure 9: Weaknesses in the In-bond Process

CBP officials at most of the ports we visited cited resource constraints as a 

top reason for not inspecting in-bond shipments. For example, CBP 

officials at the Los Angeles/Long Beach, California, port—one of the 

busiest, with the highest volume of in-bond entries—told us that the 

current understaffing does not allow examination for many in-bond 

shipments. Moreover, results from our survey showed that more than 80 

percent of the 13 area ports we surveyed do not have full-time staff 

dedicated to inspecting in-bond shipments. Some ports responded that if 

they had more staff dedicated to in-bond shipments, they would have a 

greater ability to inspect in-bond shipments. In addition, seven of the eight 

largest ports that responded to our survey stated that inspectors dedicate 

less than 10 percent of their time to in-bond inspections. For example, 

CBP officials at the port of New York/Newark said that they estimated that 

less than 2 percent of in-bond entries are actually inspected. 

Nature of In-bond 

Regulations May Make It 

Difficult to Monitor In-bond 

Shipments

According to several CBP in-bond personnel we spoke with at two ports, 

certain provisions in the in-bond regulations make it more difficult to track 

in-bond shipments. These regulations pertain to (1) whether importers can 

change a shipment’s final destination without notifying CBP and (2) the 

time allowed for in-bond shipments to reach their final destination. 

S M T W T F S

30 days S M T W T F S

15 days S M T W T F S

2 days

Sources: GAO and Nova Development.

Weak point in process

Shipment 

arrives at 

port

Importer 

selects 

to ship 

goods 

in-bond

Documents 

are 

prepared 

by broker/ 

agent of 

importer

Merchandise 

moves 

inland

Merchandise 

arrives at 

destination 

port

Merchandise 

may be 

diverted 

into U.S. 

commerce– 

never 

entering 

foreign 

country, 

avoiding 

quotas and 

payment of 

duties

Merchandise 

in 

warehouse

facility

Merchandise 

enters U.S. 

commerce

Carrier has 

30 days to 

move to 

destination 

port 

(no tracking 

mechanism 

of goods is 

in place 

while 

en route)

Carrier has 

48 hours 

to report 

arrival of

merchandise 

in port 

limits

Merchandise 

must be 

entered as 

official entry 

or for export 

to foreign 

country within 

15 days of 

arrival; 

whereabouts 

of 

merchandise 

unknown

Release for 

export: 

CBP signs 

documents 

without 

physical 

verification 

of goods
Page 43 GAO-04-345 Textile Transshipment

Under the regulations, an in-bond shipment can be diverted to any Customs 

port without prior notification to CBP, except where diversions are 

specifically prohibited or restricted. For example, an importer with a 

shipment arriving in Los Angeles may declare that it will travel in-bond to 

Cleveland, Ohio. However, after filing the paperwork, the importer may 

then elect to change the final destination to New York, without filing new 

paperwork or informing CBP. The information provided to CBP at the port 

of arrival will still state Cleveland as a final destination. CBP has no way of 

knowing where the shipment is going until and if it shows up at another 

port.

For in-bond shipments of textiles or textile products, a change in 

destination requires approval of CBP’s director at the port of origin.46

However, officials at three ports that handle high volumes of textile in-bond 

shipments said that they were either unaware of the regulation or that it 

was too difficult to enforce due to the high volume of shipments they 

processed.

Another problem CBP in-bond personnel mentioned in monitoring in-bond 

movements is the extensive time allowed to carriers to transport 

merchandise across the country. The Tariff Act of 1930 established the inbond system and CBP regulations set time limits at 30 days for the delivery 

of merchandise at the port of destination for entry or for exportation.47 

Port officials stated that this time limit is excessive and may contribute to 

the diversion of cargo by giving carriers too much time to move 

merchandise to different locations. Tracking would be easier if a carrier 

had a more restricted time period during which brokers or carriers would 

have to close out the in-bond, such as 10 to 20 days, depending on the 

distance between the port of arrival and the final port of destination, 

according to these CBP officials. 

Mexico’s in-bond system works differently than the U.S. system. In fact, 

when we spoke with Mexican Customs officials at the port of Nuevo 

Laredo in Mexico regarding illegal textile transshipment, they said that 

their in-bond system could track the movement of goods more easily 

because (1) importers were not allowed to change the final destination and 

4619 C.F.R. 18.5(a), (f).

4719 C.F.R. 18.2.
Page 44 GAO-04-345 Textile Transshipment

(2) carriers are given a certain time limit to deliver merchandise, depending 

on the distance between the port of arrival and the port of destination. 

Shipments Declaring 

Exportation to Mexico Lack 

Sufficient Monitoring to 

Ensure Actual Exportation

Several BICE investigations have uncovered in-bond fraud concerning 

textile shipments that were allegedly exported to Mexico but instead 

entered into U.S. commerce to circumvent quota and duty payment. To 

cope with this problem, BICE officials in Laredo, Texas, initiated an effort 

to improve the verification of exports to Mexico by requiring that for 

shipments processed for immediate exportation, brokers had to submit a 

Mexican document known as a “pedimento,” as proof that shipments were 

exported to Mexico. However, these documents are easily falsified and can 

be sold to willing buyers for submission to CBP, according to Laredo CBP 

officials. When we spoke with Mexican Customs officials at the Nuevo 

Laredo, Mexico, port, they acknowledged that reproducing false 

government pedimentos is easy to do and that it is not a reliable method for 

verifying exportations. The broker community in Laredo, Texas, also 

expressed serious concerns with fraudulent activity by some Mexican 

government officials. They suspected that pedimentos were being sold by 

some Mexican Customs officials to facilitate the diversion of goods into the 

United States. In fact, in August 2003, the port director of Nuevo Laredo, 

Mexico, was indicted for selling false Mexican government documents for 

$12,000 each. 

Moreover, many ports along the U.S.-Mexican border do not have export 

lots where trucks with shipments bound for Mexico can be physically 

examined to ensure that the shipments are actually exported to Mexico 

instead of entering the U.S. commerce.48 Although export lots were 

opened at one time, they have been closed at many ports as a result of 

resource constraints. When export lots were open, inspectors were able to 

verify exportation because carriers were required to physically present the 

truck with the shipments for inspection. 

Since our review began, CBP has opened an export lot in Laredo, Texas, 

and has required that all shipments declared for export to Mexico be 

presented and inspected at the export lot. However, not all ports along the 

border have export lots, and Laredo in-bond personnel have noticed that as 

a result many trucks were now choosing to clear their goods through those 

48There are 24 ports of entry along the U.S.-Mexico border of which only 5 have export lots: 

Otay Mesa, Calexico, Nogales, Laredo, and El Paso. 
Page 45 GAO-04-345 Textile Transshipment

ports without export lots. CBP officials we interviewed in Laredo, along 

with the members of the Laredo broker community, have raised this 

concern and have noted the need to reopen export lots as a way to 

minimize fraud.

As of October 20, 2003, a CBP directive mandated that all merchandise to 

be exported should be presented for export certification. Certification is 

not to take place until the merchandise is physically located where export 

is reasonably assured. According to a senior CBP official, as a result of this 

directive, ports with export facilities have reopened them or provided a 

reasonable alternative such as reporting to the import facility. He also 

stated that CBP has developed plans to verify that at least a representative 

sample of reported exports are actually reported. However, officials we 

spoke with at two ports are not sure whether they will have the resources 

to verify every in-bond export. A senior CBP official confirmed this 

problem, saying that verification of exports might not occur during periods 

of staffing constraints.

CBP Has Experienced 

Serious Challenges in 

Enforcing Textile 

Transshipment 

CBP has broad enforcement authority regarding illegal textile 

transshipment, but it has experienced challenges in implementing 

enforcement actions. These challenges include a complex and lengthy 

investigative process, as well as competing priorities. As a result of these 

challenges, CBP generally has relied on excluding transshipped textiles 

from entry into the United States, rather than seizing merchandise or 

assessing penalties. In addition, addressing in-bond violations presents 

special challenges due to weaknesses in CBP’s internal controls and in the 

nature of the penalty structure. CBP also employs other means to deter 

illegal transshipment, such as informing the importer community of 

violations of textile transshipment laws and by making available lists of 

foreign violators. 

CBP Has Extensive 

Authority to Address Textile 

Transshipment Violations

CBP has broad authority to act when violations of textile transshipment 

occur. Depending on the circumstances, CBP may pursue the following 

enforcement actions: 

• Exclusion of the textile shipment. CBP can exclude textiles from entry 

if the importer has not been able to prove country of origin. Before 

admitting goods into the United States, CBP may ask for production 

records, review them, and then make a determination on origin. The 
Page 46 GAO-04-345 Textile Transshipment

importer must be able to prove the textiles’ country of origin. If CBP 

cannot clear the goods within 30 days, the textiles are automatically 

excluded. CBP may also deny entry of textiles if production documents 

reveal that the textiles were produced at a factory identified in the 

Federal Register by the Committee for the Implementation of Textile 

Agreements, as discussed below. 

• Seizure of the textile shipment. CBP can seize the textiles, if it has 

evidence that violations of a law have occurred. By law,49 seizure is 

mandatory if textiles are stolen, smuggled, or clandestinely imported. 

In other instances, CBP can exercise discretion in deciding whether 

seizure is the most appropriate enforcement action. When seizure is 

invoked, CBP takes physical possession of the merchandise. In order 

for textiles to be seized, there must be specific statutory authority that 

allows for the seizure.

• Imposition of penalties. CBP has several administrative penalties 

available, based on the nature of the violation. CBP may levy 

administrative penalties locally at the port level without conducting an 

investigation. Alternatively, CBP may refer a suspected violation for an 

investigation by BICE. The outcome of the BICE investigation may be a 

referral to (1) CBP for an administrative penalty or (2) a referral to the 

U.S. Attorney for possible criminal prosecution of the importer and its 

principal officers and the imposition of criminal monetary penalties. 

Thus, some monetary penalties result from investigations performed by 

BICE, while others simply result from activity within a port. In addition 

to civil administrative penalties, CBP may also assess liquidated 

damages claims against bonded cartmen (carriers) implicated in 

violations involving cargo transported in-bond. CBP’s Office of Fines, 

Penalties and Forfeitures is responsible for assessing certain penalty 

actions for transshipment violations and is responsible for adjudicating 

penalties, liquidated damages claims and seizures occurring at the ports, 

up to a set jurisdictional amount. 

• Pursuit of judicial criminal or civil prosecutions. CBP may refer unpaid 

civil administrative penalty or liquidated damages cases to the 

Department of Justice for the institution of collection proceedings 

either in federal district court or in the Court of International Trade. 

Additionally BICE investigates potential violations to establish the 

4919 U.S.C. §1595a (c)(1)(A).
Page 47 GAO-04-345 Textile Transshipment

evidence needed for criminal prosecution of the violations. When BICE 

deems sufficient evidence can be established, cases may be referred to 

the appropriate U.S. Attorney’s Office for criminal prosecution. 

CBP Relies Primarily on 

Exclusions Due to Lengthy 

and Complex Investigative 

Processes

CBP has increasingly relied on exclusions rather than seizures or penalties 

for textile transshipment enforcement for two primary reasons. First, it is 

easier to exclude transshipped goods than to seize them because 

exclusions require less evidence. Second, although excluded textile 

shipments may incur penalties, often CBP does not assess penalties against 

importers of excluded merchandise because it is impossible to attach 

specific culpability to the importer. According to CBP officials, absent the 

evidence to conclude the importer failed to exercise reasonable care, it 

would be difficult to sustain a penalty against an importer of excluded 

merchandise. CBP also avoids the lengthy and complex process associated 

with criminal and civil prosecutions and penalties by excluding the 

shipments. 

CBP Relies on Exclusions for 

Enforcement

In enforcing textile transshipment violations, CBP has relied more on 

exclusions than on seizures or penalties. Textiles may be excluded if the 

importer is unable to prove country of origin, whereas seizures may occur 

when false country of origin documents are presented to evade quota or 

visa restrictions—a situation requiring a higher standard of evidence. 

Exclusions usually have an immediate effect, although if the importer 

chooses to protest the decision to exclude, the importer can appeal CBP’s 

decision to the Court of International Trade. Import specialists in Long 

Beach/Los Angeles said that when an exclusion determination is made, 

they are ready to go to court if needed. The importer can ship to another 

country, abandon, or destroy the excluded textiles.

CBP may elect not to levy penalties on excluded goods where culpability of 

the importer cannot be established, and generally issues penalties against 

the importer only if the importer is implicated or the transshipped textiles 

entered the commerce of the United States. However, a senior CBP official 

said that the exclusion of textiles is considered a better deterrent than 

penalties because the importer cannot receive the goods and, therefore, 

cannot get them into U.S. stores that are waiting for them—often for 

seasonal shopping. Also, the complexity and length of investigations and 

litigation are no longer of concern, since the goods are simply excluded 

from entering the United States. Table 3 presents port-level data on 

selected enforcement actions in 2000 to 2002. 
Page 48 GAO-04-345 Textile Transshipment

Table 3: CBP Port-Level Exclusions, Penalties, and Seizures of Textiles, 2000-2002 

(Dollars in millions)

Source: CBP’s Strategic Trade Center.

Note: CBP was not able to provide data on prosecutions. 

Investigative Processes for 

Seizures and Penalties Are 

Complex and Lengthy

The investigative phase for textile transshipment cases can be a complex 

and lengthy effort, resulting in few criminal penalties. Investigators often 

must follow convoluted paper trails for the movement of goods and money, 

obtain accounting records—sometimes having to get Internal Revenue 

Service records (which can be a 6 to 9 month process). They also may have 

to subpoena banks, interview brokers and shippers, get foreign government 

cooperation, and pursue new leads as they arise. A BICE official noted that 

it is often difficult to pursue textile transshipment criminal cases because, 

unlike with some crimes, there is no “smoking gun” at the port. For 

example, when drugs are found, the drugs themselves are evidence of the 

violation. With textile transshipment, an illegal T-shirt will look no 

different than a legal one. The basis for the violation is established by 

proving that a false country of origin was knowingly claimed and that the 

importer intended to commit fraud, committed negligence, or gross 

negligence. 

Although CBP does not keep records on the length of time for disposition 

of cases, import specialists and inspectors voiced concern that 

investigations can be lengthy. For example, a senior CBP official noted that 

in 1989, there were 83 illegal entries. Although some civil cases went to the 

Court of International Trade in 1990, the first decisions were made in 1993, 

and the last were not decided until 1995, 1997, and 1999. Two of the larger 

civil cases against multinational corporations took 7 and 10 years to pursue 

at the Court of International Trade. Accordingly, CBP has a process in 

place to determine whether to accept offers to settle civil cases out of 

court, which includes evaluating the litigation risk and the resources CBP 

would have to devote to a trial. 

One factor relating to the length of the case is that, if BICE initiates a 

criminal investigation, any action relating to that case is held in abeyance 

2000 2001 2002

Number Value Number Value Number Value

Seizures 43 $2.10 14 $0.31 24 $0.79

Penalties 54 4.4 19 0.13 45 0.37 

Exclusions 402 20.2 308 22.2 455 20.0
Page 49 GAO-04-345 Textile Transshipment

pending possible criminal prosecution of the case. If sufficient evidence 

exists to justify a criminal prosecution, the case then goes to the U.S. 

Attorney’s Office. This move delays related civil proceedings. BICE 

officials in Los Angeles/Long Beach noted that U.S. attorneys are short on 

resources, since they are also working on drug-smuggling and moneylaundering investigations; and in the past 10 years in that district, fewer 

than 10 cases have been sent to the U.S. Attorney’s Office and prosecuted. 

They noted, though, that the U.S. attorneys had not rejected any textile 

transshipment cases that BICE had brought to them. Neither CBP nor the 

Justice Department could provide exact figures on the numbers of 

prosecutions of illegal textile transshipments, but CBP officials noted that 

the figures were low. 

In addition, investigating a case may entail allowing the suspect textile 

transshipments to continue for a while, to obtain sufficient evidence. 

However, investigators can be pulled off a particular textile investigation 

for a higher priority; and then the textile case sits, with CBP sometimes 

never getting back to it, according to a senior CBP official. 

When CBP pursues a case, the monetary amounts of the penalties may get 

reduced, according to CBP staff, in line with CBP’s mitigation guidelines. 

CBP data are not available to summarize the penalty amounts assessed and 

the final mitigated penalty amounts. But in one example, CBP discovered 

that a company transshipped $600,000 worth of blue jeans to evade quota 

and visa restrictions. Company officials pled guilty and, in the end, paid 

CBP civil penalties totaling only $53,000. CBP officials in the field 

expressed concern that substantial penalty reductions may be a 

disincentive to pursuing penalties or investigations. 

CBP’s Enforcement of Inbond Violations Presents 

Challenges

CBP has experienced two basic challenges in deterring in-bond diversions 

through enforcement actions. First, the previously discussed weaknesses 

in the system make it difficult for CBP to track in-bond movements and 

catch the violators. Second, when CBP discovers a breach of a bond by a 

bonded cartman (carrier), the total liability associated with the bond 

breach is limited to the value of the bond, rather than the value of the 

merchandise. Additionally, it is difficult for CBP to enforce payment of 

unpaid penalties and liquidated damages because the Department of 

Justice does not have sufficient resources available to prosecute all the 

referrals for collections actions.
Page 50 GAO-04-345 Textile Transshipment

Because in-bond shipments are not tracked, CBP cannot account for all the 

in-bond shipments that fail to fulfill the requirements of timely cargo 

delivery. According to a senior BICE official involved in in-bond 

investigations, when an investigation is initiated, BICE must physically 

track the cargo to prove a violation has occurred. This is difficult because 

the cargo is often not at the port but at a warehouse, and CBP’s surveillance 

must be constant in order to establish that the cargo was not exported. 

When CBP does find in-bond diversion occurring, it typically seeks 

liquidated damages 50 for breach of the bond. When CBP demands payment 

of liquidated damages, the claim cannot exceed the amount of the bond. 

Several CBP and BICE officials stated that the bond amounts set by CBP 

regulations are low, compared with the value of the merchandise.51 The 

original bond amount for textile entries relates to the total value of 

shipments. However, according to BICE officials, convention has allowed 

bonds for bonded cartmen (carrier) to be generally set at $25,000-$50,000 a 

year—a minimal amount that, as one BICE investigator put it, is the “cost of 

doing business.”52 For example, if a textile shipment with a domestic value 

of $1 million is illegally diverted, liquidated damages can be set at three 

times the value of the merchandise. However, if the bond is set at $50,000, 

the demand for payment of liquidated damages cannot go above this bond 

amount. Furthermore, violators may request mitigation of the $50,000 fine 

so that the resulting mitigation may only be as little as $500.53 Bond 

amounts are usually set every calendar year and, if the liquidated damages 

claims in one year exceed that year’s bond amount, the next year’s bond 

cannot be used to pay the liquidated damages incurred the previous year.54 

In 1989, CBP recognized the problem in which the amount of delinquent 

liquidated damages claims against a bonded carrier exceeded the amount 

of the bond. CBP then issued a directive that required district directors to

50See 19 C.F.R. 18.8.

5119 C.F.R. 113 sets forth the general requirements applicable to bonds. 

52Bond amounts are not set by regulation but by the port director’s exercise of sound 

discretion. 

53Amount of penalty may vary between $100 to $500, depending on the presence of 

aggravating or mitigating factors.

54Multiple claims can be made against the same bond.
Page 51 GAO-04-345 Textile Transshipment

periodically review bond sufficiency.55 CBP again issued directives in 1991 

and 1993 to provide guidelines for the determination of bond sufficiency.56 

However, CBP and BICE officials we spoke with stated that inadequate 

bond amounts continue to make liquidated damages for in-bond diversion a 

weak deterrent. 

CBP Also Uses Informed 

Compliance and Outreach 

to the Community as 

Deterrence Methods

CBP also employs methods to deter illegal transshipment by informing the 

importer community of violators of illegal textile transshipment. CBP 

officials view the publication of violators as a means to deter 

transshipment. CBP and CITA maintain various lists of foreign violators, in 

part, for this purpose. In addition, under the Customs Modernization Act,57

CBP is obligated to use informed compliance and outreach with the trade 

community. CBP regularly meets with the trade community to keep it 

informed of the latest enforcement information and to help encourage 

reasonable care on its part. CBP is looking increasingly at patterns of 

company conduct to establish lack of reasonable care. It currently is 

investigating or monitoring 40 U.S. importers it suspects may have violated 

the reasonable care standard. 

CBP Maintains Lists to Serve as 

Deterrence

CBP maintains three lists associated with illegal transshipment violations: 

the “592A list,” the “592B list,” and the “administrative list.” 

• The 592A list is published every 6 months in the Federal Register and 

includes foreign manufacturers who have been issued a penalty claim 

under section 592A of the Tariff Act of 1930. 

• The 592B list enumerates foreign companies to which attempts were 

made to issue prepenalty notices, but were returned “undeliverable” and 

therefore could not be included on the 592A list. 

• The administrative list identifies companies that have been convicted or 

assessed penalties in foreign countries, primarily Hong Kong, Macau, 

and Taiwan. CBP decided that because these companies had due 

55U.S. Customs Directive No. 4410-012, dated December 1, 1989.

56U.S. Customs Directive No. 099 3510-004 dated July 23, 1991; and Customs Directive No. 

099 3510-005 dated May 17, 1993.

57Public Law 103-182, Title VI. The Customs Modernization and Informed Compliance Act 

1993 (also known as the “Mod Act”).
Page 52 GAO-04-345 Textile Transshipment

process in their countries and were determined by that country’s law to 

have illegally transshipped textiles (false country of origin), CBP could 

legally make this information public, according to a senior CBP official. 

This list is updated as necessary. Between 1997 and October 2003, the 

names of 488 companies from Hong Kong, 7 from Taiwan, and 34 from 

Macau have been published in the administrative list. 

CITA Maintains an Exclusion List 

and May Issue Chargebacks

CITA has a policy in place whereby a letter is sent to the government of an 

offending country requiring it to address what is being done to enforce antitransshipment policies. If the government does not respond, the company 

is placed on an “exclusion” list; and goods from that company may not be 

shipped to the United States. This exclusion could run anywhere from 6 

months to 5 years, but the standard period is 2 years. In 1996, CITA issued 

a new policy stating that all goods could be banned if a TPVT visit was not 

allowed in that factory. After the policy was issued, Hong Kong began 

allowing the United States to observe enforcement efforts in factories, 

although it does not allow CBP access to companies’ books and records. 

Extensive enforcement efforts led to 500 convictions in Hong Kong courts 

for origin fraud from 1997 to October 2003. 

When CITA has evidence of textile transshipment from CBP’s TPVTs or 

other sources, it may also apply chargebacks if it has evidence of the actual 

country of origin and the goods have entered the commerce of the United 

States. Chargebacks occur when goods were not charged against quotas as 

they should have been. CITA then will go ahead and “charge those goods 

back” against the appropriate levels for an appropriate country. For 

example, if textiles have been transshipped through Vietnam, but their 

actual country of origin was found to be China, China’s quota will be 

reduced by the appropriate amount. CITA also has the authority to “triple 

charge” goods. Although CITA has the authority to issue chargebacks, over 

the last decade it has only issued chargebacks against China and Pakistan. 

The last chargebacks were issued in 2001 for a sum of $35 million. From 

1994 to 2001, chargebacks totaled $139 million. Chargebacks require a 

higher burden of proof because they require that the actual country of 

origin be established. 

CBP Conducts Outreach with the 

Textile Trade Community

When the Customs Modernization Act became effective on December 8, 

1993, CBP, then known as Customs, was given the responsibility of 

providing the public with improved information concerning the trade 

community’s rights and responsibilities. In order to do so, Customs 

created initiatives aimed at achieving informed compliance, that is, to help 

ensure that the importers are meeting their responsibilities under the law 
Page 53 GAO-04-345 Textile Transshipment

and to help deter illegal transshipment. Accordingly, Customs issued a 

series of publications and videos on new or revised Customs requirements, 

regulations, or procedures. CBP also has the responsibility to inform 

importers of their duty to act in accordance with its reasonable care 

standard. To that end, CBP provides guidance to help importers avoid 

doing business with a company that may be violating CBP laws. For 

example, CBP suggests the U.S. importer ask its supplier questions 

regarding the origin of the textiles, the labeling, and the production 

documentation, among others. CBP is currently investigating 40 importers 

for potential violations of the reasonable care standard. In a continuing 

effort to deter transshipment and meet its own responsibilities, CBP 

officials regularly meet with members of the trade industry to share 

information about the latest developments regarding textile transshipment. 

Conclusions Despite increasing trade volumes and heightened national security 

priorities, CBP has maintained a focus on textile transshipment by 

consolidating its various textile enforcement activities and by using its 

expertise to target its review process at the most suspect shipments. The 

actual number of textile and apparel shipments CBP reviews at the ports is 

low (less than 0.01 percent), and in 2002 about 24 percent of these reviews 

resulted in exclusions, 2 percent in penalties, and 1 percent in seizures. 

CBP’s overall efforts at deterrence are aimed more at excluding problem 

shipments from U.S. commerce and emphasizing importer compliance 

responsibilities rather than at pursuing enforcement actions in the courts, 

due to the complexity and length of the investigative process and past 

experiences with ultimate imposition of minimal penalties. The low 

likelihood of review and minimal penalties limit the system’s deterrent 

effect and make high-quality intelligence and targeting essential to focusing 

limited resources on the highest risk overseas factories and shipments. 

Although textile import quotas on WTO members will be eliminated on 

January 1, 2005, with the expiration of the Agreement on Textiles and 

Clothing, the roles of the STC and the port import specialists will continue 

to be important, because incentives will continue to exist to illegally 

transship merchandise through countries benefiting from trade preferences 

and free trade agreements. In addition, quotas will remain on Vietnam until 

its WTO accession, and quotas may be placed into effect on certain imports 

from China under the safeguard provision of China’s WTO Accession 

Agreement.

Because transshipment will remain a concern beyond this coming year, 

CBP will still face challenges in implementing its monitoring system. First, 
Page 54 GAO-04-345 Textile Transshipment

CBP has been slow to follow up on some of the findings from the TPVT 

factory visits, which are one of the key sources of information used in 

decisions on what textile shipments to review. CBP has not fully made the 

results of these trips known and acted quickly by entering all national 

criteria at an earlier stage rather than waiting until CBP approves the TPVT 

report. CBP has the authority to review any shipments presented for 

import. The result of waiting for TPVT report approval may mean that 

some suspect shipments are not reviewed or inspected at the ports. 

Second, CBP faces challenges in ensuring that additional import specialists 

are placed in Customs Attaché Offices overseas to assist with textile 

monitoring and enforcement activities. CBP would be able to further 

facilitate cooperation on textile issues, follow up on TPVT findings, and 

supplement the enforcement information it needs to trigger port textile 

reviews if it placed more import specialists in Customs Attaché Offices in 

high-risk countries.

In addition, we found weaknesses in CBP’s current monitoring of in-bond 

cargo transiting the United States, and CBP has only in the last year begun 

to intensively address the issue of in-bond textile and apparel shipments 

being diverted into U.S. commerce. CBP’s current in-bond procedures may 

facilitate textile transshipment by allowing loosely controlled interstate 

movement of imported cargo upon which no quota or duty has been 

assessed. Internal control weaknesses have meant that CBP places an 

unacceptably high level of reliance on the integrity of bonded carriers and 

importers. Without an automated system and detailed and up-to-date 

information on in-bond shipments, CBP cannot properly track the 

movement of in-bond cargo. In addition, limited port targeting and 

inspections of in-bond shipments constitute a major vulnerability in 

monitoring possible textile transshipments and other areas of national 

security. CBP’s regulations regarding delivery time and shipment 

destination also hinder proper monitoring. Unless these concerns are 

addressed, proper revenue collection, compliance with trade agreements, 

and enforcement of national security measures cannot be ensured. While 

CBP has taken some preliminary steps, much remains to be done before 

the in-bond system has an acceptable level of internal controls.

Moreover, CBP’s system for assessing liquidated damages does not provide 

a strong deterrent against in-bond diversion. With bond amounts set 

considerably lower than the value of the merchandise and mitigation of 

liquidated damages down to a fraction of the shipment value, violators may 

see paying the bond as a cost of doing business and may not perceive it as a 

deterrent against the diversion of goods. CBP has the authority to review 
Page 55 GAO-04-345 Textile Transshipment

bond sufficiency and can change the bond amounts to provide an effective 

deterrent against the illegal diversion of goods. 

Recommendations for 

Executive Action

To improve information available for textile transshipment reviews at CBP 

ports and to encourage continued cooperation by foreign governments, we 

recommend that the Commissioner of U.S. Customs and Border Protection 

take the following two actions:

• Improve TPVT follow-up by immediately entering all criteria resulting 

from overseas factory visits into ACS to trigger port reviews.

• Assign import specialists to Customs Attaché Offices in high-risk textile 

transshipment countries to assist with textile monitoring and 

enforcement activities, including conducting follow-up to TPVTs.

To improve its monitoring of in-bond cargo and ensure compliance with 

U.S. laws and enforcement of national security, we also recommend that 

the Commissioner of U.S. Customs and Border Protection take the 

following four steps: 

• Place priority on timely implementation of a fully automated system, 

including more information to properly track the movement of in-bond 

cargo from the U.S. port of arrival to its final port of destination.

• Increase port targeting and inspection of in-bond shipments.

• Routinely investigate overdue shipments and, pending implementation 

of an improved automated system, require personnel at ports of entry to 

maintain accurate and up-to-date data on in-bond shipments.

• Assess and revise as appropriate CBP regulations governing (1) the time 

intervals allowed for in-bond shipments to reach their final destinations, 

taking into consideration the distance between the port of arrival and 

the final port of destination and (2) whether importers or carriers can 

change the destination port without notifying CBP.

Finally, to strengthen the deterrence value of in-bond enforcement 

provisions, we recommend that the Commissioner of U.S. Customs and 

Border Protection review the sufficiency of the amount of the bond for 

deterring illegal diversion of goods.
Page 56 GAO-04-345 Textile Transshipment

Agency Comments The Department of Homeland Security provided written comments on a 

draft of this report, which is reproduced in appendix III. The Department 

agreed with our recommendations and stated that it would take the 

appropriate steps needed to implement the recommendations. In its letter, 

the department listed its key planned corrective actions for each of our 

recommendations. In addition, we received technical comments from the 

Departments of Homeland Security, Commerce, and the Office of the U.S. 

Trade Representative, which we incorporated in this report as appropriate.

We are sending copies of this report to appropriate congressional 

Committees and the Secretaries of Homeland Security, Commerce, and 

State and the Office of the U.S. Trade Representative. We will also make 

copies available to others upon request. In addition, this report will be 

available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me 

on (202) 512-4128. Additional contacts and staff acknowledgments are 

listed in appendix IV.

Loren Yager

Director, International Affairs and Trade
Page 57 GAO-04-345 Textile Transshipment

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

In a legislative mandate in the Trade Act of 2002 (P.L. 107-210, Aug. 6, 2002), 

Congress directed GAO to review U.S. Customs and Border Protection’s 

(CBP)1

 system for monitoring and enforcing textile transshipment and 

make recommendations for improvements, as needed, to the Chairman and 

the Ranking Minority Member of the Senate Committee on Finance and the 

Chairman and the Ranking Minority Member of the House Committee on 

Ways and Means. As discussed with Committee representatives, we have 

focused on answering the following questions: (1) how CBP identifies 

potential textile transshipment, (2) how well CBP’s textile review process 

works to prevent illegal textile transshipment, (3) how effectively CBP 

monitors foreign textiles transiting the United States in its in-bond system 

before entering U.S. commerce or being exported, and (4) what challenges 

CBP experienced in using penalties and other means to deter illegal textile 

transshipment. 

To examine how CBP identifies potential textile transshipment, we 

reviewed and analyzed internal planning documents and trade studies from 

the Office of Strategic Trade’s Strategic Trade Center (STC) in New York 

City, which conducts analysis and targeting of textile transshipment. We 

also analyzed CBP foreign factory and cargo shipment reports and 

summaries from the STC; the Office of Field Operations’ Textile 

Enforcement and Operations Division at CBP’s headquarters; and some 

ports of entry, from 2000 to 2003. We collected and analyzed data from 

2000 to 2003 on the targeting process from CBP’s internal database and 

documents and reviewed how CBP collected the data. We examined the 

data for their reliability and appropriateness for our purposes. We found 

the data to be sufficiently reliable to represent CBP’s targeting activity. In 

addition, we also collected official U.S. international trade statistics from 

the Census Bureau for 1993 to 2002, textile and apparel production 

statistics from the Census Bureau (Annual Survey of Manufacturers) for 

1993 to 2001, and employment statistics from the Bureau of Labor Statistics 

(Current Employment Survey) for 1993 to 2002. We defined “textile and 

apparel goods for international trade,” based on the definition in the World 

Trade Organization’s (WTO) Agreement on Textiles and Clothing (Annex), 

as well as additional textile and apparel goods not covered by the 

1

On March 1, 2003, the U.S. Customs Service was transferred to the new Department of 

Homeland Security. The border inspection functions of the Customs Service, including 

specifically the Office of Field Operations, along with other U.S. government agencies 

having border protection responsibilities, were reorganized into the U.S. Customs and 

Border Protection (CBP). The Office of Investigations was moved into the new Bureau of 

Immigration and Customs Enforcement (BICE).
Appendix I

Objectives, Scope, and Methodology

Page 58 GAO-04-345 Textile Transshipment

agreement but identified as textile and apparel goods by the Department of 

Commerce’s Office of Textiles and Apparel on the Department of 

Commerce’s Web site. We reviewed these statistics for their reliability and 

appropriateness for our purposes and found them sufficiently reliable to 

represent the trends and magnitude of trade, production, and employment 

in the textile and apparel sector. We also observed a targeting session at 

the STC in preparation for a foreign factory visit to El Salvador. In 

addition, we interviewed CBP officials in the Office of Strategic Trade’s 

STC and Regulatory Audit Division, the Office of Field Operations, and in 

seven ports of entry (New York/Newark, New York; Los Angeles/Long 

Beach, California; Laredo, Texas; Columbus and Cleveland, Ohio; and 

Seattle and Blaine, Washington) about their targeting activities and roles. 

Together, these ports represent CBP service ports that processed 55 

percent of textiles and apparel imported into the United States in 2002. 

However, we recognize that activities among individual ports of entry 

within CBP service port areas may vary from ports that we visited. To gain 

additional perspectives on CBP’s targeting operations, we interviewed 

officials of the Department of Commerce and the Office of the U.S. Trade 

Representative (USTR), as well as former Customs officials and private 

sector business associations. 

To examine CBP’s textile review process to prevent illegal textile 

transshipment, we reviewed internal planning documents, directives, and 

reports of the Office of Field Operations’ Textile Enforcement and 

Operations Division, the Office of International Affairs, and the Office of 

Strategic Trade’s STC and Regulatory Audit Division covering the years 

1999 to 2003. We visited seven ports of entry and observed operations. To 

review CBP’s foreign factory visits, we observed a Textile Production 

Verification Team (TPVT) visit in El Salvador. To report on CBP’s overall 

textile review activity, we collected data on TPVT visits and port-level 

textile review activity from 1996 to 2003 from CBP’s internal database and 

documents. We reviewed how CBP collected the data and examined the 

data for their reliability and appropriateness for our purposes. We found 

the data to be sufficiently reliable to represent CBP’s foreign factory 

inspections and port-level activity. We interviewed CBP officials in the 

Office of Field Operations, the Office of International Affairs, the Office of 

Strategic Trade, and the seven ports of entry we visited. We also 

interviewed officials of the Department of Commerce, including the 

Committee for the Implementation of Textile Agreements (CITA) and the 

Office of Textiles and Apparel; USTR; and the Department of State; as well 

as former Customs officials and private sector business associations. In 

addition, we interviewed customs and trade officials in Hong Kong and 
Appendix I

Objectives, Scope, and Methodology

Page 59 GAO-04-345 Textile Transshipment

Macao, as well as a Mexican embassy trade official in Washington, D.C., 

and Mexican port officials in Nuevo Laredo, Mexico. We communicated 

with Canadian officials through an exchange of written questions and 

answers. 

To review how CBP uses its in-bond system to monitor foreign textiles 

transiting the United States before entering U.S. commerce or being 

exported, we observed in-bond operations at six of the ports of entry we 

visited: Newark, New Jersey/New York, New York; Long Beach/Los 

Angeles, California; Cleveland and Columbus, Ohio; Laredo, Texas; and 

Blaine, Washington. We reviewed documents on CBP’s in-bond operations 

from the Office of Field Operations’ Cargo Verification Division, as well as 

documents on in-bond penalties from the Office of Field Operations’ Fines, 

Penalties, and Forfeitures Branch. We conducted interviews on the in-bond 

system with CBP officials in the Cargo Verification Division; the Fines, 

Penalties, and Forfeitures Branch; and the Textile Enforcement and 

Operations Division at headquarters; and at the ports of entry and Bureau 

of Immigration and Customs Enforcement (BICE) headquarters and Field 

Offices. 

In addition, we conducted a survey of in-bond activities at 11 major U.S. 

area ports that process the highest levels of textile and apparel imports and 

2 smaller area ports that also process textile and apparel imports. For each 

area port, we also requested that the survey be distributed to two 

additional subports that also processed textile and apparel imports. We 

asked ports to respond to the survey, based on in-bond activities from 

October 2001 to May 2003. We received responses from all 13 area ports 

and 29 subports we surveyed. We selected ports for our survey, based on 

four criteria: (1) ports with the highest value of textile and apparel imports; 

(2) geographic distribution that included coastal, in-land, northern, and 

southern border ports; (3) ports with the highest value of textile and 

apparel imports by trade preference program (such as the African Growth 

and Opportunity Act and the Caribbean Basin Trade Partnership Act); and 

(4) ports of various sizes, allowing us to include smaller ports that also 

process textile and apparel imports. We found the data to be sufficiently 

reliable to review how the in-bond system monitors foreign textiles 

transiting the United States. Not all ports were able to provide data for the 

entire time period requested; therefore, we were not able to use some of 

the data for the missing time period. In addition, although we received a 

100-percent response rate, the in-bond data we received from the 13 area 

ports and 29 subports are not representative of in-bond operations at all 

Customs ports. Copies of the survey are available from GAO.
Appendix I

Objectives, Scope, and Methodology

Page 60 GAO-04-345 Textile Transshipment

To examine the challenges CBP experienced in using penalties and other 

means to deter illegal textile transshipment, we reviewed internal planning 

documents, memorandums, and reports, dating from 1999 to 2003, from 

former Office of Investigations officials now in the BICE, as well as from 

CBP’s Offices of Chief Counsel; Field Operations (including the Textile 

Enforcement and Operations Division and the Fines, Penalties, and 

Forfeitures Division); Strategic Trade, (including the STC and Regulatory 

Audit Division); and Regulations and Rulings. We also reviewed CBP’s 

enforcement authorities in the relevant statutes and federal regulations, as 

well as reviewing informed compliance publications and other information 

on CBP’s and BICE’s Web sites. We collected data on CBP’s enforcement 

and penalty actions for the years 2000 to 2002, from CBP’s internal 

databases and documents. We reviewed how CBP collected the data and 

examined the data for their reliability and appropriateness for our 

purposes. We found the data to be sufficiently reliable to represent CBP’s 

enforcement and penalty actions. We interviewed officials in BICE and in 

CBP’s Offices of Chief Counsel; Field Operations (including the Textile 

Enforcement and Operations Division and the Fines, Penalties, and 

Forfeitures Division); Strategic Trade (including the STC and Regulatory 

Audit Division); and Regulations and Rulings, as well as at the seven ports 

of entry we visited, and associated BICE Field Offices. We also interviewed 

officials of the Department of Commerce, including CITA and OTEXA; as 

well as former Customs officials and private sector business associations. 

We performed our work from September 2002 through December 2003 in 

accordance with generally accepted government auditing standards.
Page 61 GAO-04-345 Textile Transshipment

Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment ApendxiI

U.S. textile and apparel imports have grown considerably over the past 

decade and have been comprised largely of apparel products. In 2002, 

China surpassed Mexico as the largest foreign supplier of textile and 

apparel to the U.S. market, followed by Caribbean Basin countries that 

benefit from preferential access.1 New York and Los Angeles are the 

service ports that receive the largest share (by value) of textile and apparel 

imports, with Miami, Florida, and Laredo, Texas, important service ports 

districts for imports from Latin America. The United States is in the 

process of gradually phasing out textile and apparel quotas under a 1995 

World Trade Organization (WTO) agreement, but a significant number of 

quotas are still to be eliminated at the end of the agreement’s phase-out 

period on January 1, 2005. Elimination of these quotas is likely to affect 

trade patterns as more efficient producers acquire greater market share. 

Tariffs and other potential barriers, however, such as antidumping and 

safeguard measures, still exist and could still affect trade patterns and 

create an incentive for illegal textile transshipment. Also, as quotas are 

removed, a more competitive market may place increasing pressure on the 

U.S. textile and apparel industry. Industry production and employment in 

the United States has generally been declining in recent years, with 

employment in the apparel sector contracting the most.2

Imports of Textile and 

Apparel

U.S. imports of textile and apparel products have nearly doubled during the 

past decade (1993 to 2002), rising from about $43 billion to nearly $81 

billion.3

 Because overall imports have also nearly doubled during the 

decade, textile and apparel products have maintained about a 7 percent 

share of total U.S. imports throughout this period. As figure 10 shows, the 

majority of U.S. textile and apparel imports are apparel products (about 73 

percent in 2002). The remaining imports consist of yarn (10 percent),

1

The Caribbean Basin Trade Partnership Act (CBTPA) provides Caribbean Basin countries 

(see note to fig. 11 for list of countries) reduced or eliminated tariff rates for qualifying 

textile and apparel products.

2

The textile and apparel industry we refer to in this report is the manufacture of textile and 

apparel products, but not the distribution and retail of textile and apparel products.

3

Textile and apparel imports, as we define them in this report, include all textile and apparel 

products, whether or not quotas or other restrictions affect them. See appendix I for more 

information on our methodology.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 62 GAO-04-345 Textile Transshipment

uncategorized textile and apparel products (9 percent), made-up and 

miscellaneous textile products (7 percent), and fabric (2 percent).4

Figure 10: Major Components of Textile and Apparel Imports, 1993-2002

Note: Uncategorized imports of textile and apparel are those products not listed under the U.S. quota 

category system. These products may still fall into one of the four other categories, such as yarn or 

fabric.

The major foreign suppliers of textile and apparel to the U.S. market are 

China, Mexico, and the Caribbean Basin countries. However, as figure 11 

shows, no major supplier had more than a 15 percent share of overall 

textile and apparel imports in 2002. Also, after the top 10 suppliers, 

remaining suppliers still provided more than a third of imports. These 

smaller suppliers include Africa Growth and Opportunity Act (AGOA) 

countries, which supplied $1.1 billion (about 1.4 percent) of imports, and 

4

Made-up and miscellaneous textile products include such products as bedspreads, 

blankets, pillow cases and sheets; towels; floor coverings; handbags; and luggage. 

Uncategorized imports of textile and apparel are those products not listed under the U.S. 

quota category system. These products may still fall into one of the four other categories, 

such as yarn or fabric.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 63 GAO-04-345 Textile Transshipment

Andean Trade Promotion and Drug Eradication Act (ATPDEA) countries, 

which supplied $790 million (about 1 percent) of imports.5

 

5

AGOA beneficiary countries are Benin, Botswana, Cameroon, Cape Verde, Central African 

Republic, Chad, Republic of the Congo, Cote d’Ivoire, Democratic Republic of the Congo, 

Djibouti, Eritrea, Ethiopia, Gabon, the Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, 

Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, 

Nigeria, Rwanda, So Tome and Principe, Senegal, Seychelles, Sierra Leone, South Africa, 

Swaziland, Tanzania, Uganda, and Zambia. However, not all beneficiary countries are 

eligible for textile and apparel benefits. According to CBP, Botswana, Cameroon, Cape 

Verde, Cote d’Ivoire, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritius, 

Mozambique, Namibia, Niger, Rwanda, Senegal, South Africa, Swaziland, Tanzania, Uganda, 

and Zambia are eligible for these benefits. Countries eligible for ATPDEA benefits are 

Bolivia, Colombia, Ecuador and Peru.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 64 GAO-04-345 Textile Transshipment

Figure 11: Share of U.S. Textile and Apparel Imports by Trade Partner, 2002

Note: Caribbean Basin Trade Partnership Act (CBTPA) beneficiary countries include Antigua and 

Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, Dominica, Dominican 

Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, 

Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, Saint Lucia, Saint Vincent and the 

Grenadines, and Trinidad and Tobago. However, not all beneficiary countries are eligible for textile and 

apparel benefits. According to CBP, Barbados, Belize, Costa Rica, Dominican Republic, El Salvador, 

Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, Saint Lucia, and Trinidad and 

Tobago are currently eligible for these benefits.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 65 GAO-04-345 Textile Transshipment

Countries with free trade agreements (FTA) with the United States 

accounted for 18.8 percent of total textile and apparel imports in 2002. This 

includes the North American Free Trade Agreement (NAFTA) countries, 

Mexico and Canada, which supplied 17.1 percent. Other FTA partners—

Chile, Israel, Jordan, and Singapore—supplied the remaining 1.7 percent.6 

In addition, the United States is negotiating FTAs with several other 

countries, which combined accounted for 15 percent of U.S. imports.7 The 

most important (in terms of imports) of these potential FTA partners are 

the countries in the Central American FTA negotiations (Costa Rica, El 

Salvador, Guatemala, Honduras, and Nicaragua) and the Dominican 

Republic, all of which are also part of the overall Free Trade Area of the 

Americas (FTAA) negotiations.

Top U.S. Ports The service ports of New York and Los Angeles were the top two recipients 

of textile and apparel imports into the United States in 2002. Together they 

accounted for more than 40 percent of imports. Furthermore, the top 10 

U.S. service ports accounted for about 77 percent of textile and apparel 

imports in 2002 (see fig. 12). Overall, Customs has 42 service ports, 

encompassing more than 300 individual ports of entry. For example, the 

New York service port encompasses the individual ports of JFK Airport; 

Newark, New Jersey; and New York City. 

6

However, imports in 2002 from Chile and Singapore did not yet qualify for free trade status. 

In addition, some textile and apparel imports from FTA countries may not have qualified for 

free trade status if they did not meet rules of origin requirements. 

7

Countries with which the United States had publicly announced its intent to negotiate free 

trade agreements as of November 25, 2003, include Australia, Bahrain, and Morocco; the 

countries of the Southern African Customs Union (Botswana, Lesotho, Namibia, South 

Africa, and Swaziland); and the 34 countries of the Free Trade Agreement of the Americas 

(FTAA). In addition to the FTAA, the United States is intent on negotiating separate free 

trade agreements with Central American countries (Costa Rica, El Salvador, Guatemala, 

Honduras, and Nicaragua), Andean countries (Bolivia, Colombia, Ecuador, and Peru), and 

the Dominican Republic.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 66 GAO-04-345 Textile Transshipment

Figure 12: Share of U.S. Textile and Apparel Imports by Service Port, 2002

On the West Coast, Los Angeles receives a large portion of its imports from 

Asian suppliers such as China and Hong Kong; while in the South, Miami 

and Laredo receive a large portion of their imports from Caribbean 

countries. In-land ports, such as Columbus, Ohio, receive imports shipped 

across country by truck or rail from other ports or flown directly into the 

airports in its district. 
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 67 GAO-04-345 Textile Transshipment

Textile and Apparel 

Products Affected by 

Quotas

Under the WTO’s 1995 Agreement on Textiles and Clothing (ATC), the 

United States and other WTO members agreed to gradually eliminate quota 

barriers to textile and apparel trade during a 10-year transition period, 

ending by January 1, 2005.8

 By 1995, the United States, the European 

Union, Canada, and Norway were the only WTO members to maintain 

quotas on textile and apparel. Each agreed, however, to remove a share of 

their quotas by January 1 in 1995, 1998, 2002, and 2005. Based on 2002 

Department of Commerce import statistics and our analysis, the United 

States still maintains quotas on products that account for about 61 percent 

of its textile and apparel imports by value. Not all of these imports, 

however, are subject to quotas because not all U.S. trade partners are 

subject to quotas on these products. For instance, U.S. textile and apparel 

categories 338 and 339 (men and women’s cotton knit shirts and blouses) 

account for over 12 percent of U.S. imports of textile and apparel products, 

and categories 347 and 348 (men and women’s cotton trousers and shorts) 

account for about another 13 percent. Although several countries face U.S. 

quotas in each of these categories, not all countries are restricted. 

Therefore, quotas only limit a portion of the 25 percent of imports 

accounted for by products in these categories. Customs, though, is 

concerned with the trade flows relating to all the products under quotas, 

despite which country they originate in because the country of origin may 

be misrepresented. 

Future Barriers to 

Trade in Textile and 

Apparel

Under the ATC, the United States agreed to remove by 2005 textile and 

apparel quotas maintained against other WTO members. These quotas 

have created significant barriers to imports of certain types of textile and 

apparel products from quota-restricted countries. For example, in 2002, 

the U.S. International Trade Commission estimated that quota barriers 

amounted to an approximately 21.4 percent tax on apparel imports and a 

3.3 percent tax on textile imports.9

 However, these estimates were 

calculated across all textile and apparel products and countries. Therefore, 

actual barriers may be significantly higher for certain highly restricted 

products. Upon removal of these quotas, trade patterns are likely to 

8

Of the $81 billion in U.S. imports of textile and apparel products in 2002, the ATC covered 

about 95 percent. 

9

See U.S. International Trade Commission, The Effects of Significant U.S. Import 

Restraints (Washington, D.C.: International Trade Commission, 2002).
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 68 GAO-04-345 Textile Transshipment

change, with more efficient foreign suppliers that were formerly restricted 

under the quotas capturing a larger share of the U.S. market. 

FTAs, though, will still provide preferential access to products that meet 

rules of origin requirements from FTA partners. FTAs generally provide 

tariff-free access, while 2002 tariff rates on more restricted textile and 

apparel products ranged from 15 to 33 percent. Also, the United States 

provides similar preferential access unilaterally to countries from the 

Caribbean Basin, sub-Saharan Africa, and the Andean region under the 

CBTPA, AGOA, and ATPDEA preferential programs.10 Officials and experts 

that we spoke with said they believed these tariff differentials to be a 

significant incentive for continued illegal textile transshipment because 

they act as a tax on textile and apparel products from non-FTA partners. 

Also, under WTO rules, the United States may impose antidumping or 

countervailing duties on imports from certain countries if it can be shown 

that these products have either been “dumped” in the U.S. market or were 

subsidized.11 Furthermore, under China’s accession agreement with the 

WTO, members may impose a special safeguard mechanism on imports 

from China if they are shown to cause market disruption.12 In fact, in 

December 2003 the United States imposed this mechanism against imports 

from China of certain types of knit fabrics, dressing gowns and robes, and 

brassieres. 

10Some of these programs may be eliminated, as the countries become members of FTAs 

with the United States.

11Antidumping or countervailing measures take the form of increased duties on imports. 

Dumping is generally considered to be the sale of a commodity in a foreign market at a 

lower price than its normal value. WTO rules allow for the imposition of antidumping duties, 

or fees, to offset dumping. Countervailing duties are special customs duties imposed to 

offset subsidies provided on the manufacture, production, or export of a particular good. 

Subsidies essentially lower a producer’s costs or increase its revenues.

12A safeguard is a temporary import control or other trade restriction that a WTO member 

imposes to prevent serious injury to domestic industry caused by increased imports. Upon 

joining the WTO, China agreed to a unique safeguard provision that allows WTO members to 

impose restrictions if imports from China disrupt their markets, as well as a special textile 

safeguard that also allows restrictions on textile and apparel products specifically. The 

China-specific safeguard provision expires in 2013, and the textile-specific safeguard 

expires in 2008.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 69 GAO-04-345 Textile Transshipment

U.S. Textile and Apparel 

Production and 

Employment

U.S. textile and apparel employment has declined over the past decade 

(1993 through 2002), while production has declined from 1995 through 2001 

(latest year statistics were available for production data). Production of 

apparel (and textiles to a lesser extent) in the United States tends to be 

relatively intensive in its use of labor. Consequently, the U.S. industry has 

faced strong competition from developing countries, such as China and 

India, where labor rates are significantly lower than in the United States. 

Employment in the U.S. apparel sector is higher than in the textile sector, 

overall; however, employment declines in the U.S. textile and apparel 

industry have primarily been due to declines in the apparel sector. As 

figure 13 shows, employment in the overall textile and apparel industry fell 

from about 1,570,000 jobs in 1993 to about 850,000 jobs in 2002. The 

majority of this decline was due to the fall in apparel employment from 

more than 880,000 workers in 1993 to about 360,000 workers in 2002.13 

However, employment in the other sectors of the industry—textile mills 

(yarns, threads, and fabrics) and textile product mills (carpets, curtains, 

bedspreads, and other textile products besides apparel)—also declined.

13The industry sectors described here (apparel, textile product mills, and textile mills) are 

based on the North American Industry Classification System (NAICS). 
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 70 GAO-04-345 Textile Transshipment

Figure 13: Employment in Major Sectors of the Textile and Apparel Industry, 1993-2002

Regarding U.S. production (as measured by shipments) in the textile and 

apparel sectors, figure 14 shows overall textile and apparel production 

declined between 1997 and 2001.14 During that period, the value of U.S. 

shipments of textile and apparel products (either to the U.S. market or 

overseas) fell from nearly $158 billion to about $132 billion. This decline 

was due to contraction in the apparel and textile mills sectors. However, 

the textile product mills sector remained relatively stable during the same 

time period.

14Prior to 1997, production data was classified by the Standard Industry Classification (SIC) 

system into two industry sectors, rather than three. Therefore, we do not show the 

individual sectors of the industry prior to 1997 for production data, as we do with 

employment data.
Appendix II

U.S. Textile and Apparel Trade, Production, 

and Employment

Page 71 GAO-04-345 Textile Transshipment

Figure 14: U.S. Production (Shipments) in Textile and Apparel Sectors, 1997-2001

Note: Data from the Annual Survey of Manufacturers only available through 2001.
Page 72 GAO-04-345 Textile Transshipment

Appendix III

Comments from the Department of Homeland 

Security ApendxiI
Appendix III

Comments from the Department of Homeland 

Security

Page 73 GAO-04-345 Textile Transshipment
Appendix III

Comments from the Department of Homeland 

Security

Page 74 GAO-04-345 Textile Transshipment
Appendix III

Comments from the Department of Homeland 

Security

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Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts Virginia Hughes (202) 512-5481

Leyla Kazaz (202) 512-9638

Staff 

Acknowledgments

In addition to those individuals named above, Margaret McDavid, Michelle 

Sager, Josie Sigl, Tim Wedding, Stan Kostyla, Ernie Jackson, and Rona 

Mendelsohn made key contributions to this report.

(320152)
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